THE ECONOMIC FEASIBILITY OF ETHANOL PRODUCTION FROM SUGAR IN THE UNITED STATES

July 2006

This report was done through a cooperative agreement between the Office of Energy Policy and New Uses (OEPNU), Office of the Chief Economist (OCE), U.S. Department of Agriculture (USDA), and Louisiana State University (LSU). Principal authors of this report are Dr. Hossein Shapouri, OEPNU/OCE, USDA and Dr. Michael Salassi, J. Nelson Fairbanks Professor of Agricultural Economics, Department of Agricultural Economics and Agribusiness, LSU Agricultural Center. The Economic Feasibility of Ethanol Production from Sugar in the United States

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Summary and Conclusions ...... iii

List of Tables and Figures ...... vii

Introduction ...... 1

The U.S. Ethanol Industry ...... 2

Price Outlook for Ethanol ...... 3

Feedstock Available for Ethanol Production ...... 4

Byproducts of the Ethanol and Sugar Industries ...... 11

Starch and Sugar Content of Grains and Sugar Crops...... 12

Feedstock Production Costs ...... 12

Ethanol Yields from Alternative Feedstocks ...... 16

Net Feedstock Costs per Gallon of Ethanol ...... 18

Processing Costs per Gallon of Ethanol ...... 21

Ethanol Processing Costs in Other Countries ...... 27

Capital Expenditure Costs ...... 32

Potential Location of Sugar Ethanol Plants ...... 34

Ethanol - New Technologies in Production and Conversion ...... 35

U.S. Sugar Policy and Market Outlook for Sugar ...... 39

References ...... 42

Appendix A – Ethanol Yields from Sucrose ...... 46

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Summary and Conclusions

Ethanol is a high-octane fuel which is used primarily as a gasoline additive and extender. The reduction in use of methyl tertiary butyl ether (MTBE) due to its environmental problems caused by groundwater contamination and surging prices for petroleum-based fuels are dramatically increasing the demand for ethanol and the interest in ethanol production in the United States. Ethanol can be produced from carbohydrates such as sugar, starch, and cellulose by fermentation using yeast or other organisms.

The purpose of this report is to investigate the economic feasibility of producing ethanol from sugar feedstocks in the United States. These sugar feedstocks include: (1) sugarcane juice, (2) sugar beet juice, (3) cane or beet molasses, (4) raw sugar and (5) refined sugar. Estimated costs of producing ethanol from these feedstocks are presented along with a discussion of other factors that may influence the economic feasibility of converting sugar feedstocks into ethanol. Comparisons are made with grain feedstocks, specifically corn.

The United States produced 3.9 billion gallons of ethanol in 2005, up from 3.4 billion gallons in 2004. Currently, corn is the primary feedstock being used in the production process. In 2005, Brazil, produced 4.2 billion gallons of ethanol, up from 4.0 billion gallons in 2004. Production of ethanol in Brazil utilizes sugar and molasses from sugarcane as a primary feedstock and thus demonstrates the technical feasibility of sugar-to-ethanol production. Corn-based ethanol accounts for approximately 97 percent of the total ethanol produced in the United States.

U.S. ethanol conversion rates utilizing corn as the feedstock are estimated at approximately 2.65 gallons of ethanol per bushel for a wet mill process and 2.75 gallons per bushel for a dry mill process. For the 2003-05 period, net feedstock costs for a wet mill plant are estimated at about $0.40 per gallon with total ethanol production costs estimated at $1.03 per gallon. Net feedstock costs for a dry mill plant are estimated at $0.53 per gallon with total ethanol production costs at $1.05 per gallon.

The theoretical yield of ethanol from sucrose is 163 gallons of ethanol per ton of sucrose. Factoring in maximum obtainable yield and realistic plant operations, the expected actual recovery would be about 141 gallons per ton of sucrose. Using 2003-05 U.S. average sugar recovery rates, one ton of sugarcane would be expected to yield 19.5 gallons of ethanol and one ton of sugar beets would be expected to yield 24.8 gallons of ethanol. One ton of molasses, a byproduct of sugarcane and sugar beet processing, would yield about 69.4 gallons of ethanol. Using raw sugar as a feedstock, one ton would yield 135.4 gallons of ethanol while refined sugar would yield 141.0 gallons.

Sugarcane and sugar beet feedstock and processing costs were estimated for the 2003-05 period for the purpose of estimating the cost of producing ethanol using these feedstocks. The cost of converting sugarcane into ethanol was estimated to be approximately $2.40 per gallon based on 2003-04 sugarcane market prices and estimated sugarcane processing costs. Feedstock cost was estimated at $1.48 per gallon of ethanol produced, representing 62 percent of the total ethanol

iii production cost. The cost of converting sugar beets into ethanol was estimated to be approximately $2.35 per gallon based on 2003-04 sugar beet market prices and estimated sugar beet processing costs. Feedstock cost was estimated at $1.58 per gallon of ethanol produced, representing 67 percent of the total ethanol production cost. These estimates may understate the relative profitability of converting sugarcane and sugar beets into ethanol, compared with processing sugarcane into raw sugar and sugar beets into refined sugar, due to price increases for raw and refined sugar in recent months following the hurricanes in Florida and Louisiana in 2005. While sugar production is expected to rebound in 2006/07, U.S. sugar prices will likely remain considerably above forfeiture levels.

Molasses, from either sugarcane or sugar beets, was found to be the most cost competitive feedstock. Estimated ethanol production costs using molasses were approximately $1.27 per gallon with a $0.91 per gallon feedstock cost. Given the market prices of raw cane sugar and wholesale refined beet sugar in the United States, use of raw or refined sugar would be very costly to convert into ethanol. Ethanol production costs were estimated at $3.48 per gallon using raw sugar as a feedstock and were estimated at $3.97 per gallon using refined sugar. For these feedstocks, feedstock costs accounted for more than 80 percent of the total estimated ethanol production cost.

The table below summarizes the estimated ethanol production costs for corn and sugar feedstocks in the United States, as well as sugarcane in Brazil and sugar beets in the European Union (EU). In the United States, corn is the least cost feedstock available for ethanol production. The cost of producing ethanol from sugarcane in Brazil is estimated at about $0.81 per gallon, excluding capital costs. Like corn in the United States, the relatively low feedstock cost of sugarcane in Brazil makes this process economically competitive. The economic feasibility of ethanol production in the EU from sugar beets is highly dependent on the negotiated price for sugar beets.

Summary of estimated ethanol production costs (dollars per gallon) 1/ U.S. U.S. U.S. U.S. U.S. U.S. U.S. Brazil E.U. Corn Corn Sugar Sugar Molasses Raw Refined Sugar Sugar Cost wet dry cane beets 3/ sugar sugar Cane Beets Item milling milling 3/ 3/ 4/ 4/

Feedstock 0.40 0.53 1.48 1.58 0.91 3.12 3.61 0.30 0.97 costs 2/ Processing 0.63 0.52 0.92 0.77 0.36 0.36 0.36 0.51 1.92 costs Total cost 1.03 1.05 2.40 2.35 1.27 3.48 3.97 0.81 2.89 1/ Excludes capital costs. 2/ Feedstock costs for U.S. corn wet and dry milling are net feedstock costs; feedstock costs for U.S. sugarcane and sugar beets are gross feedstock costs. 3/ Excludes transportation costs. 4/ Average of published estimates.

Estimates of capital expenditure costs to construct facilities to utilize sugarcane or sugar beets to produce ethanol would be expected to be higher than capital costs for corn-based ethanol plants primarily due to higher feedstock preparation costs. A 20 million gallon per year ethanol plant using sugarcane or sugar beets as a feedstock would be expected to have capital expenditure

iv costs in the range of $2.10 to $2.20 per gallon of annual capacity, compared to an estimate of $1.50 per gallon of annual capacity for a corn-based facility. The addition of an ethanol plant onto an existing sugarcane or sugar beet factory, to utilize cane or beet juice or molasses, would have a much lower capital expenditure cost making it more comparable with corn. Economies of size have been shown to exist in corn-based ethanol plants and the same would be expected for sugar-based ethanol plants.

The optimal location of an ethanol processing facility is largely dependent on being in close proximity to its feedstock supply, regardless of which feedstock is being utilized. This has been proven with corn-based ethanol in the United States as well as sugar-based ethanol in Brazil. Corn-based ethanol plants in the United States are located close to large supplies of corn, primarily in the Midwest, to minimize feedstock transportation costs. Ethanol facilities utilizing sugar or molasses would be most economical if located at or near sugarcane or sugar beet processing facilities.

Major conclusions from this study relative to the economic feasibility of using sugar crops as a feedstock for ethanol production in the United States are:

• It is economically feasible to make ethanol from molasses. The cost of that feedstock is low enough to make it competitive with corn. Challenges may involve having a large enough supply of molasses at a given location to minimize transportation costs to justify construction and operation of an economically efficient ethanol production facility.

• The estimated ethanol production costs using sugarcane, sugar beets, raw sugar, and refined sugar as a feedstocks are more than twice the production cost of converting corn into ethanol. While it is more profitable to produce ethanol from corn in the United States, the price of ethanol is determined by the price of gasoline and other factors, rather than the cost of producing ethanol from corn. With recent spot market prices for ethanol near $4 per gallon, it is profitable to produce ethanol from sugarcane and sugar beets, raw sugar, and refined sugar.

• Over the next several months, ethanol prices are expected to moderate as ethanol production expands. Based on current futures prices, the price of ethanol could drop to about $2.40 per gallon by the summer of 2007, making it unprofitable to produce ethanol from raw and refined sugar.

• Producing ethanol from sugar beets and sugarcane is estimated to be profitable at current ethanol spot prices and at about breakeven over the next several months, excluding capital replacement costs, based on current futures prices for ethanol. Over the longer term, the profitability of producing ethanol from sugarcane and sugar beets depends on the prices of these two crops, the costs of conversion, and the price of gasoline. A moderation in the price of gasoline and a return in ethanol prices to their historic relationship with gasoline prices could push the price of ethanol well below breakeven levels for converting sugar beets and sugarcane into ethanol. However, the market for crude oil remains very volatile and highly sensitive to events in the Middle East, making it very difficult to forecast future trends in crude oil and gasoline prices.

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• Cellulosic conversion of biomass into ethanol could reduce the cost of converting sugarcane into ethanol in the future. Challenges would include development of high tonnage varieties of sugarcane as well as economical processing costs of cellulose on a commercial scale.

• Currently, no U.S. plants are producing ethanol from sugar feedstocks. As a result, no data exist on the cost of producing ethanol from sugar feedstocks in the United States. Brazil and several other countries are producing ethanol from sugarcane, sugar beets, and molasses, demonstrating that it is economically feasible to convert these feedstocks into ethanol. However, the economics of producing ethanol from sugar feedstocks in these countries is not directly comparable to the economics of producing ethanol from sugar feedstocks in the United States. The prices of sugarcane and sugar beets, sugarcane and sugar beet production costs, ethanol production facility construction and processing costs, and government sugar and ethanol policies and programs vary considerably from country to country. For these reasons, the above cost of production figures for converting sugar feedstocks may be imprecise.

vi List of Tables

Table Page

1 Location and capacity of current U.S. ethanol plants 2 2 U.S. corn acreage, yield and production, 1980-2005 5 3 U.S. sorghum acreage, yield and production, 1980-2005 5 4 U.S. barley acreage, yield and production, 1980-2005 6 5 U.S. oats acreage, yield and production, 1980-2005 7 6 U.S. sugarcane acreage, yield and production, 1980-2005 8 7 U.S. sugar beet acreage, yield and production, 1980-2005 9 8 U.S. beet and cane sugar production, 1980/81-2005/06 10 9 U.S. corn production costs, 1996-2005 13 10 U.S. sorghum production costs, 1996-2005 14 11 Estimated average sugarcane production and processing costs, 2003-05 15 12 Estimated average sugar beet production and processing costs, 2003-05 16 13 Ethanol conversion factors for grain feedstocks per unit of feedstock 16 14 Ethanol conversion factors for sugar feedstocks per ton of feedstock 17 15 Ethanol conversion factors for sugar feedstocks per gallon of ethanol 18 16 Net feedstock cost per gallon of ethanol, 2003-05 19 17 U.S. and world sugar market prices, 1991-2005 20 18 Ethanol cash operating expenses and net feedstock costs, wet milling process 22 19 Ethanol cash operating expenses and net feedstock costs, dry milling process 22 20 Estimated U.S. sugarcane processing costs for ethanol 23 21 Estimated U.S. sugar beet processing costs for ethanol 24 22 Estimated ethanol feedstock and production costs, sugarcane feedstock 25 23 Estimated ethanol feedstock and production costs, sugar beet feedstock 25 24 Estimated ethanol feedstock and production costs for molasses, raw sugar and refined sugar feedstock 26 25 Comparison of estimated ethanol production costs for various feedstocks 26 26 Leading ethanol producing countries, 2004-05 27 27 Projected world centrifugal sugar production and exports, 2005/06 28 28 Estimated capital investment costs for alternative sugar feedstocks 33 29 Annual capital investment expense for alternative feedstocks 33 30 Location and daily capacity of U.S. sugar beet factories, 2005 34 31 Location and daily capacity of U.S. sugarcane mills, 2004 35 32 Location and melting capacity of U.S. cane sugar refining companies, 2005 35

List of Appendix Tables Appendix Table Page

1 Florida sugarcane acreage, yield and production, 1980-2005 47 2 Hawaii sugarcane acreage, yield and production, 1980-2005 47 3 Louisiana sugarcane acreage, yield and production, 1980-2005 48 4 Texas sugarcane acreage, yield and production, 1980-2005 49 5 Great Lakes sugar beet acreage, yield and production, 1991-2005 49 6 Upper Midwest sugar beet acreage, yield and production, 1991-2005 49 7 Great Plains sugar beet acreage, yield and production, 1991-2005 50 8 Far West sugar beet acreage, yield and production, 1991-2005 50

vii 9 Estimated sugarcane processing costs per pound of raw sugar equivalent for ethanol production, U.S. and Florida, 2003-05 51 10 Estimated sugarcane processing costs per pound of raw sugar equivalent for ethanol production, Hawaii and Louisiana/Texas, 2003-05 51 11 Estimated sugar beet processing costs per pound of refined sugar equivalent for ethanol production, U.S., 2003-05 52 12 Estimated sugar beet processing costs per pound of refined sugar equivalent for ethanol production, East and West Regions, 2003-05 52 13 Sugarcane production cash costs, Florida, 1992-96 with indexed values for 2003-2005 53 14 Sugarcane production economic costs, Florida, 1992-96 with indexed values for 2003-2005 53 15 Sugarcane production cash costs, Hawaii, 1992-96 with indexed values for 2003-2005 54 16 Sugarcane production economic costs, Hawaii, 1992-96 with indexed values for 2003-2005 54 17 Sugarcane production cash costs, Louisiana/Texas, 1992-96 with indexed values for 2003-2005 55 18 Sugarcane production economic costs, Louisiana/Texas, 1992-96 with indexed value for 2003-2005 55 19 Sugarcane processing costs per pound of 96 degree raw sugar, Florida, 1992-96 56 20 Cane sugar production and processing costs per pound of raw sugar, Florida, 1992-96 56 21 Sugarcane processing costs per pound of 96 degree raw sugar, Hawaii, 1992-96 57 22 Cane sugar production and processing costs per pound of raw sugar, Hawaii, 1992-96 57 23 Sugarcane processing costs per pound of 96 degree raw sugar, Louisiana/Texas, 1992-96 58 24 Cane sugar production and processing costs per pound of raw sugar, Louisiana/Texas, 1992-96 58 25 Sugarcane estimated processing costs per pound of 96 degree raw sugar, Florida, 2003-05 59 26 Cane sugar estimated production and processing costs per pound of raw sugar, Florida, 2003-05 59 27 Sugarcane estimated processing costs per pound of 96 degree raw sugar, Hawaii, 2003-05 60 28 Cane sugar estimated production and processing costs per pound of raw sugar, Hawaii, 2003-05 60 29 Sugarcane estimated processing costs per pound of 96 degree raw sugar, Louisiana/Texas, 2003-05 61 30 Cane sugar estimated production and processing costs per pound of raw sugar, Louisiana/Texas, 2003-05 61 31 Sugar beet production cash costs, United States, 2003-04 with indexed values for 2005 62 32 Sugar beet production cash costs, Great Lakes, 2003-04 with indexed values for 2005 63 33 Sugar beet production cash costs, Red River Valley, 2003-04 with indexed values for 2005 63 34 Sugar beet production cash costs, Great Plains, 2003-04 with indexed values for 2005 64 35 Sugar beet production cash costs, Northwest, 2003-04 with indexed values for 2005 64 36 Sugar beet processing costs, United States, 1997-98 with projections for 2003-05 65 37 Sugar beet processing costs, Eastern Region, 1997-98 with projections for 2003-05 66 38 Sugar beet processing costs, Western Region, 1997-98 with projections for 2003-05 67 39 Beet sugar production and processing costs per pound of refined sugar, United States, 2003-05 68

viii 40 Beet sugar production and processing costs per pound of refined sugar, Great Lakes and Red River Valley, 2003-05 68 41 Beet sugar production and processing costs per pound of refined sugar, Great Plains and Northwest, 2003-05 69

List of Figures Figure Page

1 Ethanol yields per acre, France, Brazil, U.S. 30 2 Ethanol yields per ton of feedstock, France, Brazil, U.S. 30 3 Gross feedstock cost per gallon, France, Brazil, U.S. 30 4 U.S. and world sugar prices 31 5 World sugar prices vs. sugar cane prices received by farmers in Brazil 32

ix The Economic Feasibility Of Ethanol Production From Sugar In The United States

Introduction

The Central American—Dominican Republic—United States Free Trade Agreement (CAFTA- DR) focused the attention of many in the U.S. sugar industry on the feasibility of converting sugar into ethanol as a new market opportunity for sugar beet and sugarcane producers, as well as a means to help support sugar prices received by producers by reducing the supply of sugar for food use in the domestic market. The purpose of this report is to investigate the feasibility of producing ethanol from sugar feedstocks in the United States. In the production of ethanol from sugar, five potential feedstocks are examined in this report. These feedstocks include: (1) sugarcane juice, (2) sugar beet juice, (3) cane/beet molasses, (4) raw sugar, and (5) refined sugar. Estimated costs of producing ethanol from these feedstocks are presented along with a discussion of future technologies that may have the potential of reducing the cost of converting sugar feedstocks into ethanol. Comparisons of the cost of producing ethanol from sugar feedstocks are made with grain feedstocks, primarily corn.

Ethanol is a high-octane fuel which is used primarily as a gasoline additive and extender. The only economically feasible fuel oxygenates currently available are ethanol and methyl tertiary butyl ether (MTBE). MTBE has been used since 1979 to replace lead in gasoline as an octane enhancer. Ethanol is replacing the use of MTBE as a fuel additive due to groundwater contamination associated with MTBE use in gasoline. In addition, surging prices for petroleum- based fuel are expanding the demand for ethanol as an energy source. As a result, the demand for ethanol in the United States is projected to increase substantially over the next ten to twenty years (Annual Energy Outlook, 2006).

Ethanol can be produced from carbohydrates such as sugar, starch, and cellulose by fermentation using yeast or other organisms. World production of ethanol (all grades) in 2005 was about 12 billion gallons (Renewable Fuels Association). Although many countries produce ethanol from a variety of feedstocks, Brazil and the United States are the major producers of ethanol in the world, each accounting for approximately 35 percent of global production. In 2005, Brazil produced 4.2 billion gallons of ethanol, up from 4 billion gallons in 2004. Production of ethanol in Brazil utilizes sugar and molasses from sugarcane as a primary feedstock. In addition to Brazil, production of ethanol from sugarcane is currently underway in several other countries including Australia, Columbia, India, Peru, Cuba, Ethiopia, Vietnam, and Zimbabwe.

In 1970, approximately 80 percent of the Brazilian sugarcane crop was used to produce sugar for food, while only 20 percent was used to produce ethanol. Ethanol production in Brazil started to increase in the late 1970s and early 1980s. For the 2005/06 sugarcane crop year, it is projected that Brazil will use 53 percent of its sugar to produce ethanol, the highest proportion since 2000/01 when almost 55 percent was converted into fuel (F. O. Licht).

The United States produced 3.9 billion gallons of ethanol in 2005, up from 3.4 billion gallons in 2004. Corn-based ethanol accounts for approximately 97 percent of the total ethanol produced in the United States. Most ethanol in the United States is produced by either a wet milling or dry milling process utilizing shelled corn as the principal feedstock.

1

The U.S. Ethanol Industry

As of June 2006, there are 101 ethanol plants operating in 21 States with a total production capacity of 4.8 billion gallons per year (Renewable Fuels Association). In addition, 33 ethanol plants are under construction and seven ethanol plants are expanding their existing capacity. By early 2007, total production capacity could increase to 6.7 billion gallons per year.

Fuel ethanol production increased from a few hundred million gallons in 1980 to 3.9 billion gallons in 2005. During the past four years, ethanol production in the United States grew, on average, at a compound rate of 20 percent per year. Almost all of the fuel ethanol produced in the United States utilizes corn as its primary feedstock. A relatively minor quantity of ethanol is produced from other feedstocks including sorghum, cheese whey, and beverage waste.

Table 1 shows the number of ethanol plants currently operating or under construction in each state and production capacity in million gallons per year as of June 2006. With corn being the primary feedstock, current plants are primarily located close to a large, dependable supply of corn and are concentrated in the Midwest. States with a relatively large number of ethanol plants are generally major producers of corn.

Table 1. Location and capacity of current U.S. ethanol plants Number Current capacity Under construction State of plants (mil. gal./year) (mil. gal./year) Arizona 1 -- 55.0 California 4 32.7 35.0 Colorado 3 83.5 1.5 Georgia 1 0.4 -- Illinois 7 533.0 107.0 Indiana 5 102.0 280.0 Iowa 28 1,176.5 530.0 Kansas 9 205.5 95.0 Kentucky 2 35.7 9.0 Michigan 4 50.0 157.0 Minnesota 17 648.6 58.0 Missouri 4 110.0 45.0 Nebraska 19 623.5 501.0 New Mexico 1 30.0 -- North Dakota 4 163.5 100.0 Ohio 2 3.0 100.0 South Dakota 13 432.0 238.0 Tennessee 1 67.0 -- Texas 1 -- 30.0 Wisconsin 6 188.0 40.0 Wyoming 1 5.0 -- Total 1/ 4,818.9 2,122.5 1/ 101 current ethanol plants, 33 new plants under construction and 7 expansions of existing plants Source: Renewable Fuels Association

Growth in the U.S. ethanol industry is directly related to Federal and State policies and regulations. Government incentives, such as motor fuel excise tax credits, small ethanol producer tax credits, import duties on fuel ethanol imports, and others helped increase the

2 production of ethanol during the 1980s. Government regulations, such the Clean Air Act Amendments of 1990, the Energy Policy Act of 1992, and the Energy Conservation Reauthorization Act of 1998, significantly increased the demand for ethanol during the 1990’s. In recent years, the phasing out of MTBE, the Farm Security and Rural Investment Act of 2002, and the Energy Policy Act of 2005 along with surging prices for gasoline have sharply expanded the production and use of ethanol. It took 20 years for the ethanol industry to reach 1.6 billion gallons of production in 2000, but it took only five more years for the industry to increase ethanol production to 3.9 billion gallons.

The Energy Policy Act of 2005 established the renewable fuels standard (RFS), which directs that gasoline sold in the U.S. contain specified minimum volumes of renewable fuel. Under the Act, the total volume of renewable fuel to be utilized starts at 4 billion gallons in 2006 and increases to 7.5 billion gallons in 2012. The Energy Policy Act of 2005 also provides for a minimum of 250 million gallons of cellulosic derived ethanol to be included in the RFS by 2013.

Industry projections indicate ethanol production will increase beyond the mandated minimum level of 7.5 billion gallons by 2012. While the ethanol requirement in 2006 is set at 4 billion gallons, ethanol production in 2006 is projected to reach 5 billion gallons. Currently, a large percentage of ethanol is being used to replace the gasoline additive MTBE and ethanol is also used as a gasoline extender and octane enhancer. Prices of crude oil and gasoline increased significantly in 2004 and especially in 2005 and continue to remain strong. Long-term projections by the Department of Energy’s Energy Information Agency (EIA) indicate that the price of crude oil will remain high during the next 7 to 10 years, boosting the demand for ethanol above the RFS requirement.

Price Outlook for Ethanol

Ethanol is a gasoline extender and octane enhancer and its value depends on the price of gasoline. In recent years, the price of ethanol in the U.S. has followed the price of gasoline (adjusted for energy content relative to gasoline) plus the 51 cents per gallon Federal excise tax credit. However, spot prices of ethanol have increased much more sharply in recent months than the price of gasoline as U.S. oil refineries replace MTBE, an octane booster that has been found to contaminate groundwater, with ethanol. In addition, the lack of infrastructure for shipping and blending ethanol with gasoline and limited ethanol supplies on the international market have also contributed to the surge in ethanol prices.

The average spot price for ethanol for the month of May 2006 was $2.99 per gallon, compared with $1.32 for the same month last year. Spot ethanol prices increased to over $4 per gallon in June and prices are expected to remain strong through the summer driving season. Ethanol prices are eventually expected to ease as ethanol production expands. More than one billion gallons of new production capacity will be online by the fall of 2006. In addition, more ethanol is expected to be available for export from Brazil and through Caribbean Basin Initiative (CBI) countries. The futures price for ethanol on the Chicago Board of Trade gradually declines from over $3 per gallon for July of this year to about $2.40 per gallon for May of 2007.

3 As ethanol production expands to fully replace MTBE and assuming production continues to exceed the requirements established in the RFS, the price of ethanol should reflect its value as a gasoline extender and move up and down with the wholesale price of gasoline. The key long term factors affecting the price of gasoline in the U.S. are the price of crude oil and gasoline refining capacity. The world price of crude oil is projected to rise through 2006 and remain steady in 2007 at about $60 per barrel, and then gradually decline to about $45 per barrel by 2010 (2004 dollars) as new supplies enter the market (EIA). Based on this forecast, the prices of gasoline and other refined products could start to decline in 2008, which would likely cause ethanol prices to decline further in 2008. However, the market for crude oil remains very volatile and highly sensitive to events in the Middle East making it very difficult to forecast future trends in crude oil and gasoline prices.

Feedstock Available for Ethanol Production

It is technically feasible to make ethanol from a wide variety of available feedstocks. Fuel ethanol could be made from crops which contain starch such as feed grains, food grains, and tubers, such as potatoes and sweet potatoes. Crops containing sugar, such as sugar beets, sugarcane, and sweet sorghum also could be used for the production of ethanol. In addition, food processing byproducts, such as molasses, cheese whey, and cellulosic materials including grass and wood, as well as agricultural and forestry residues could be processed to ethanol.

Area planted, area harvested for grain, production, and yield per harvested acre for corn, sorghum, barley, and oats (feed grains) are presented in Tables 2-5. Planted acreage to corn, sorghum, barley, and oats declined from 1980 to 2005. Total feedgrain planted acres declined from 121.0 million acres in 1980 to 96.3 million acres in 2005. During the same period, harvested area for grain declined from 101.4 million acres to 85.9 million acres. Unlike the area planted and harvested, production, and yield per harvested acre increased significantly during 1980-2005. Total feedgrain production increased from 198 million metric tons in 1980 to 299 million metric tons in 2005. During this period, the increase in production of corn for grain offset decreases in production of sorghum, barley, and oats.

Corn acreage planted declined from 84.0 million acres in 1980 to less than 70 million acres in the late 1980s then increased to 81.8 million acres in 2005. Area harvested for grain increased slightly from 73.0 million acres in 1980 to 75.1 million acres in 2005. The three-year average corn yield per harvested area increased from 104 bushels in 1980-82 to 150 bushels per acre in 2003-05. Corn yield per harvested acre is directly related to land quality, management, weather, farm input use, and advanced technologies used in corn production. Some of these technologies include genetically modified seed, slow release fertilizer, global positioning systems (GPS), and yield mapping.

In addition to corn, sorghum is also used as feedstock for ethanol production. Sorghum area planted and harvested has declined during the last 25 years. Area planted to sorghum increased from 15.6 million acres in 1980 to 18.3 million acres in 1985. Since then, area planted to sorghum declined steadily to 6.5 million acres in 2005. Yield per acre increased from 46.3

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Table 2. U.S. corn acreage, yield and production, 1980-2005 Year Planted Harvested Yield per Acre Production (1,000 acres) (1,000 acres) (bushels) (1,000 bushels)

1980 84,043 72,961 91.0 6,639,396 1981 84,097 74,524 108.9 8,118,650 1982 81,857 72,719 113.2 8,235,101 1983 60,207 51,479 81.1 4,174,251 1984 80,517 71,897 106.7 7,672,130 1985 83,398 75,209 118.0 8,875,453 1986 76,580 68,907 119.4 8,225,764 1987 66,200 59,505 119.8 7,131,300 1988 67,717 58,250 84.6 4,928,681 1989 72,322 64,783 116.3 7,531,953 1990 74,166 66,952 118.5 7,934,028 1991 75,957 68,822 108.6 7,474,765 1992 79,311 72,077 131.5 9,476,698 1993 73,239 62,933 100.7 6,337,730 1994 78,921 72,514 138.6 10,050,520 1995 71,479 65,210 113.5 7,400,051 1996 79,229 72,644 127.1 9,232,557 1997 79,537 72,671 126.7 9,206,832 1998 80,165 72,589 134.4 9,758,685 1999 77,386 70,487 133.8 9,430,612 2000 79,551 72,440 136.9 9,915,051 2001 75,702 68,768 138.2 9,502,580 2002 78,894 69,330 129.3 8,966,787 2003 78,603 70,944 142.2 10,089,222 2004 80,929 73,631 160.4 11,807,086 2005 81,759 75,107 147.9 11,112,072 Source: National Agricultural Statistics Service, U.S. Department of Agriculture.

Table 3. U.S. sorghum acreage, yield and production, 1980-2005 Year Planted Harvested Yield per Acre Production (1,000 acres) (1,000 acres) (bushels) (1,000 bushels)

1980 15,639 12,513 46.3 579,343 1981 15,930 13,677 64.0 875,835 1982 16,028 14,137 59.1 835,083 1983 11,880 10,001 48.7 487,521 1984 17,254 15,355 56.4 866,241 1985 18,285 16,782 66.8 1,120,271 1986 15,339 13,862 67.7 938,869 1987 11,756 10,531 69.4 730,809 1988 10,343 9,042 63.8 576,686 1989 12,642 11,103 55.4 615,420 1990 10,535 9,089 63.1 573,303 1991 11,064 9,870 59.3 584,860 1992 13,177 12,050 72.6 875,022 1993 9,882 8,916 59.9 534,172 1994 9,787 8,882 72.7 645,741 1995 9,429 8,253 55.6 458,648 1996 13,097 11,811 67.3 795,274 1997 10,052 9,158 69.2 633,545 1998 9,626 7,723 67.3 519,933 1999 9,288 8,544 69.7 595,166 2000 9,195 7,726 60.9 470,526 2001 10,248 8,579 59.9 514,040 2002 9,589 7,125 50.6 360,713 2003 9,420 7,798 52.7 411,237 2004 7,486 6,517 69.6 453,654 2005 6,454 5,736 68.7 393,893 Source: National Agricultural Statistics Service, U.S. Department of Agriculture.

5 bushels per acre in 1980 to approximately 73 bushels in 1992 and 1994 and then declined to 68.7 bushels in 2005. During the past 25 years, sorghum yield per acre increased 14 percent, while corn yield per acre increased more than 75 percent. Sorghum has more tolerance to drought than corn. In addition, less chemicals and fertilizer are used in the production of sorghum. Total production of sorghum increased from 579 million bushels in 1980 to a record high of over one billion bushels in 1985. Sorghum production declined to 394 million bushels in 2005.

There are other feed grains produced in the United States which could be used as a feedstock in the production of ethanol, such as barley and oats, although their conversion rates are less than that for corn or sorghum. U.S. barley planted acreage has declined from over 13 million acres in 1985-86 to less than 4 million in 2005. Oats planted acreage has declined from over 12 million acres in the 1980s to just over 4 million 2005.

Table 4. U.S. barley acreage, yield and production, 1980-2005 Year Planted Harvested Yield per Acre Production (1,000 acres) (1,000 acres) (bushels) (1,000 bushels)

1980 8,320 7,260 49.7 361,135 1981 9,618 9,038 52.4 473,512 1982 9,549 9,013 57.2 515,935 1983 10,411 9,721 52.3 508,269 1984 11,934 11,218 53.3 598,034 1985 13,139 11,591 50.9 590,213 1986 13,024 11,974 50.8 608,532 1987 10,929 9,957 52.4 521,499 1988 9,831 7,636 38.0 289,994 1989 9,125 8,313 48.6 404,203 1990 8,221 7,529 56.1 422,196 1991 8,941 8,413 55.2 464,326 1992 7,762 7,285 62.5 455,090 1993 7,786 6,753 58.9 398,041 1994 7,159 6,667 56.2 374,862 1995 6,689 6,279 57.2 359,376 1996 7,094 6,707 58.5 392,433 1997 6,706 6,198 58.1 359,878 1998 6,325 5,854 60.1 351,569 1999 4,983 4,573 59.5 271,996 2000 5,801 5,200 61.1 317,804 2001 4,951 4,273 58.1 248,329 2002 5,008 4,123 55.0 226,906 2003 5,348 4,727 58.9 278,283 2004 4,527 4,021 69.6 279,743 2005 3,875 3,269 64.8 211,896 Source: National Agricultural Statistics Service, U.S. Department of Agriculture.

6

Table 5. U.S. oats acreage, yield and production, 1980-2005 Year Planted Harvested Yield per Acre Production (1,000 acres) (1,000 acres) (bushels) (1,000 bushels)

1980 13,381 8,657 53.0 458,792 1981 13,632 9,407 54.2 509,529 1982 13,951 10,258 57.8 592,630 1983 20,289 9,062 52.6 476,471 1984 12,414 8,163 58.0 473,661 1985 13,235 8,147 63.6 518,490 1986 14,671 6,840 56.3 384,996 1987 17,907 6,888 54.3 373,713 1988 13,907 5,530 39.3 217,375 1989 12,085 6,882 54.3 373,587 1990 10,423 5,947 60.1 357,654 1991 8,653 4,816 50.6 243,851 1992 7,943 4,496 65.4 294,229 1993 7,937 3,803 54.4 206,731 1994 6,637 4,008 57.1 228,844 1995 6,225 2,952 54.6 161,094 1996 4,638 2,655 57.7 153,245 1997 5,068 2,813 59.5 167,246 1998 4,891 2,752 60.2 165,768 1999 4,668 2,445 59.6 145,628 2000 4,473 2,325 64.2 149,165 2001 4,401 1,911 61.5 117,602 2002 4,995 2,058 56.4 116,002 2003 4,597 2,220 65.0 144,383 2004 4,085 1,787 64.7 115,695 2005 4,246 1,823 63.0 114,878 Source: National Agricultural Statistics Service, U.S. Department of Agriculture.

Sugarcane is a tropical crop which is processed into raw sugar and molasses. In the United States, sugarcane is planted and harvested in Hawaii, Florida, Louisiana, and Texas. Sugarcane is a perennial crop that can be harvested 4 to 5 times before reseeding. U.S. sugarcane production is reported on a fiscal year basis, as the harvest season in Florida, Hawaii, and Texas generally runs from October through March. The harvest season in Louisiana, the most northern growing U.S. area, generally runs from late September through late December or early January.

In 2005, total U.S. area in sugarcane was 922,600 acres (Table 6). Harvested area for sugar was 858,200 acres, with the remaining acreage harvested for seed. Total sugarcane production, excluding harvested for seed, was 24.726 million tons, resulting in an average national yield of 28.8 tons of cane per harvested acre. The average recovery rate, pounds of raw sugar produced as a percent of total cane volume, was 12.33 percent. The estimated 2005/06 sugar yield per acre was 3.55 tons of raw sugar per harvested acre. Total sugar production from sugarcane in 2005/06 is estimated at 3.05 million tons, raw value, representing 41 percent of U.S. sugar production.

Florida harvested 376,000 acres of sugarcane for sugar in 2005/06 from a total of 401,000 acres in cultivation (Appendix table 1). This harvested acreage accounted for 44 percent of the total sugarcane acreage harvested in the U.S. and is down from a high of 445,000 acres harvested for sugar in 2001/02. Florida’s sugarcane production for 2005/06 is estimated at 11.806 million tons, 48 percent of U.S. sugarcane production. Sugarcane acreage in Florida has remained relatively stable over the past several years with a gradual upward trend in both yield per acre and sugar recovery rate. In both 2004 and 2005, hurricanes reduced harvested acreage and yield per acre in Florida.

7 Table 6. U.S. sugarcane acreage, yield and production, 1980-2005 Crop Year Total Acreage for Sugarcane yield Sugarcane Recovery Sugar yield per acreage sugar per acre production rate acre (1,000 acres) (tons/acre) (1,000 tons) (%) (tons, raw value)

1980/81 732.7 683.6 37.4 25,582 10.66 3.99 1981/82 755.4 715.6 36.6 26,165 10.83 3.96 1982/83 741.7 700.4 40.6 28,449 10.77 4.37 1983/84 767.7 733.4 37.1 27,201 10.77 4.00 1984/85 747.3 700.7 37.1 26,008 11.56 4.29 1985/86 770.0 722.8 37.2 26,877 11.28 4.20 1986/87 796.2 750.7 38.5 28,936 11.34 4.37 1987/88 823.6 778.3 36.0 28,026 11.71 4.22 1988/89 845.3 793.6 35.9 28,479 11.93 4.28 1989/90 851.9 803.3 34.9 28,069 11.32 3.95 1990/91 794.2 726.4 36.4 26,475 11.91 4.34 1991/92 896.9 849.6 34.1 28,960 11.84 4.04 1992/93 925.2 870.4 33.2 28,873 11.68 3.87 1993/94 948.3 893.3 33.2 29,635 11.76 3.90 1994/95 936.8 881.7 33.3 29,404 12.06 4.02 1995/96 932.3 874.7 33.3 29,137 11.85 3.95 1996/97 888.9 829.5 33.4 27,687 11.76 3.93 1997/98 914.0 860.3 34.9 30,003 12.09 4.22 1998/99 947.1 888.3 36.9 32,743 11.97 4.41 1999/00 993.3 941.4 35.7 33,577 12.27 4.38 2000/01 1023.3 976.7 35.1 34,291 12.10 4.25 2001/02 1027.8 970.3 33.8 32,775 12.14 4.10 2002/03 1023.2 971.9 34.9 33,903 11.67 4.07 2003/04 992.3 930.6 34.3 31,942 12.42 4.26 2004/05 938.2 879.5 31.0 27,243 12.02 3.72 2005/06 922.6 858.2 28.8 24,726 12.33 3.55 Source: Economic Research Service, U.S. Department of Agriculture.

Sugarcane production in Hawaii has been declining over the past 25 years. A large percentage of Hawaiian raw sugar was shipped to California for refining, leaving a relatively small quantity for use in Hawaii. Stagnant demand for sugar in Hawaii, as well as high production and transportation costs of raw sugar from Hawaii to the mainland, has forced some of the state’s sugar plantations and sugar mills to go out of business. Increased land values due to commercial and residential development have also contributed to the decline in the state’s sugar industry. In 2005, Hawaii harvested 21,700 acres of sugarcane for sugar, down from 97,400 acres in 1980 (Appendix table 2). Sugarcane yields in Hawaii have been high, compared to other states, due to the length of the production cycle before harvest. Since 1980, sugarcane yields per harvested acre have exceeded 80 tons every year except 2000/01. However, because of the declining acreage, Hawaii’s 2005/06 sugarcane production only represented 7 percent of U.S. sugarcane production.

Louisiana is the other major sugarcane producing state. In 2005/06, Louisiana harvested 420,000 acres of sugarcane for sugar from 455,000 acres under cultivation (Appendix table 3). This harvested acreage accounted for 49 percent of total U.S. harvested acreage. Sugarcane area under cultivation in Louisiana has exceeded 400,000 acres every year since 1997/98. Yield per acre in 2005/06 was 22.9 tons, down from a record high of 32.7 tons in 1999/2000, as hurricanes in 2005 reduced yield per acre. Louisiana’s sugarcane production was 9.618 million tons in 2005/06, accounting for 39 percent of total U.S. production. Sugar recovery rate, normally in the 11.0-12.0 percent range, is estimated at 12.9 percent for 2005/06. Raw sugar yield per acre is estimated to be 2.96 tons per harvested acre.

8 Texas harvested 40,500 acres of sugarcane for sugar in 2005/06, accounting for 4.7 percent of total U.S. harvested acreage (Appendix table 4). Yields have averaged 39.2 tons of sugarcane over the past five years. The sugarcane yield in 2005/06 was 38.3 tons per acre, resulting in an estimated total production of 1.551 million tons of sugarcane, 6 percent of the U.S. total. Sugar recovery rates have varied over the years. Recovery in 2005/06 was 11.6 percent, resulting in an estimated sugar yield of 4.44 tons of raw sugar per harvested acre.

Sugar beets are an annual crop whose acreage is dependent upon the relative profitability of competing crops as well as the price of sugar. Total U.S. planted area of sugar beets in 2005 was 1.3 million acres (Table 7). This acreage is similar to levels planted in the early 1980s, although total planted acreage has fluctuated in the years since. The average U.S. yield in 2005 was 22.2 tons of beets per harvested acre, yielding a total production of 27.537 million tons, down from a high of 33.420 million tons in 1999. Sugar recovery rates in beets generally average higher than cane. In 2005, the average recovery rate was 15.8 percent. Total U.S. production of beet sugar in 2005/06 was estimated at 4.345 million tons, raw value, accounting for 59 percent of total U.S. sugar production (Table 8).

Table 7. U.S. sugar beet acreage, yield and production, 1980-2005 Crop Year Planted Harvested Sugar beet yield Sugar beet Recovery Sugar yield per acreage acreage per acre production rate acre (1,000 acres) (tons/acre) (1,000 tons) (%) (tons)

1980 1,231 1,190 19.7 23,502 13.8 2.72 1981 1,254 1,228 22.4 27,538 12.0 2.70 1982 1,054 1,027 20.3 20,894 12.9 2.62 1983 1,081 1,056 19.9 20,992 13.5 2.69 1984 1,124 1,096 20.2 22,134 13.2 2.66 1985 1,125 1,102 20.4 22,529 13.3 2.71 1986 1,232 1,191 21.1 25,162 14.5 3.07 1987 1,267 1,252 22.4 28,072 13.6 3.05 1988 1,327 1,301 19.1 24,810 13.7 2.61 1989 1,324 1,295 19.4 25,131 13.8 2.68 1990 1,400 1,377 20.0 27,513 14.0 2.80 1991 1,427 1,387 20.3 28,203 13.6 2.77 1992 1,437 1,412 20.6 29,143 15.1 3.11 1993 1,438 1,409 18.6 26,249 15.6 2.90 1994 1,476 1,443 22.1 31,853 14.1 3.11 1995 1,445 1,420 19.8 28,065 14.0 2.76 1996 1,368 1,323 20.2 26,680 15.0 3.03 1997 1,459 1,428 20.9 29,886 14.7 3.07 1998 1,498 1,451 22.4 32,499 13.6 3.05 1999 1,561 1,527 21.9 33,420 14.8 3.24 2000 1,564 1,373 23.7 32,541 14.4 3.41 2001 1,371 1,243 20.7 25,764 15.2 3.15 2002 1,427 1,361 20.4 27,707 16.1 3.28 2003 1,365 1,348 22.8 30,710 15.3 3.48 2004 1,346 1,307 23.0 30,021 15.4 3.53 2005 1,300 1,243 22.2 27,537 15.8 3.50 Source: Economic Research Service, U.S. Department of Agriculture.

Sugar beets are produced primarily in four regions of the country: the Great Lakes region (Michigan and Ohio), the Upper Midwest region (Minnesota and North Dakota), the Great Plains region (Colorado, Montana, Nebraska, Texas, and Wyoming) and the Far West region (California, Idaho, Oregon, and Washington). Sugar beet acreage in the Great Lakes region has been declining slightly over the past ten years. Planted area in 2005 was 154,000 acres, down

9 Table 8. U.S. beet and cane production, 1980/81 – 2005/06 Total sugar production Share of production Crop Year Beet Cane Total Beet Cane Total (1,000 tons, raw value) (Percent)

1980/81 3,234 2,987 6,221 52.0 48.0 100 1981/82 3,318 2,804 6,122 54.2 45.8 100 1982/83 2,692 3,263 5,955 45.2 54.8 100 1983/84 2,837 3,073 5,910 48.0 52.0 100 1984/85 2,915 3,025 5,940 49.1 50.9 100 1985/86 2,988 3,136 6,124 48.8 51.2 100 1986/87 3,653 3,506 7,159 51.0 49.0 100 1987/88 3,822 3,425 7,247 52.7 47.3 100 1988/89 3,396 3,408 6,804 49.9 50.1 100 1989/90 3,466 3,225 6,691 51.8 48.2 100 1990/91 3,854 3,124 6,978 55.2 44.8 100 1991/92 3,845 3,461 7,306 52.6 47.4 100 1992/93 4,392 3,446 7,838 56.0 44.0 100 1993/94 4,090 3,565 7,655 53.4 46.6 100 1994/95 4,493 3,434 7,927 56.7 43.3 100 1995/96 3,916 3,454 7,370 53.1 46.9 100 1996/97 4,013 3,191 7,204 55.7 44.3 100 1997/98 4,389 3,632 8,021 54.7 45.3 100 1998/99 4,423 3,951 8,374 52.8 47.2 100 1999/00 4,956 4,076 9,032 54.9 45.1 100 2000/01 4,680 4,089 8,769 53.4 46.6 100 2001/02 3,915 3,985 7,900 49.6 50.4 100 2002/03 4,462 3,964 8,426 53.0 47.0 100 2003/04 4,692 3,957 8,649 54.3 45.7 100 2004/05 4,611 3,266 7,876 58.5 41.5 100 2005/06 4,345 3,048 7,393 58.8 41.2 100 Source: Economic Research Service, U.S. Department of Agriculture.

from 212,000 acres planted in 1994 (Appendix table 5). A total of 152,000 acres was harvested in 2005 with an average yield of 21.3 tons of beets per acre. This harvested acreage accounted for 12.2 percent of total U.S. harvested beet acreage. Total sugar beet production is estimated at 3.238 million tons, accounting for 12 percent of total U.S. production. An upward trend in yields in this region has offset the decline in acreage, resulting in a relatively stable level of total sugar beet production.

The Upper Midwest region, although including only the states of Minnesota and North Dakota, is the largest sugar beet producing region in the country. Total production in 2005 is estimated at 13.977 million tons of sugar beets, representing 51 percent of total U.S. production (Appendix table 6). Sugar beet acreage in this region has been increasing over the past several years. In 2005, 746,000 acres were planted to sugar beets, up from 564,000 acres in 1991. Approximately 703,000 acres were harvested with an average yield of 19.9 tons per harvested acre.

Sugar beet acreage in the Great Plains region has declined substantially over the past several years. In 2005, 174,900 acres were planted to sugar beets, down from 292,800 in 1992 (Appendix table 7). Harvested area in 2005 was 165,400 acres, representing 13 percent of the U.S. total. Yields over the past few years have been higher compared to earlier years, averaging over 22 tons per acre for the past three years. However, the decrease in planted acreage over the years has significantly reduced total production. In 2005, the region produced 3.701 million tons of sugar beets, 13 percent of U.S. production. In the early 1990s, this region produced almost 6.0 million tons of beets annually.

10 The Far West region planted 224,900 acres of sugar beets in 2005, down from 379,900 acres in 1991 (Appendix table 8). Harvested area was 222,500 acres, 18 percent of total U.S. harvested acreage. This region has the highest average sugar beet yields per acre. In 2005, the region’s average yield was 29.8 tons of beets per harvested acre, down from a high of 31.3 tons a year earlier. Total estimated production was 6.621 million tons of beets, 24 percent of total U.S. beet production in 2005.

Byproducts of the Ethanol and Sugar Industries

There are two processes currently used to produce ethanol from corn in the United States: wet milling process and dry milling or dry ground process. Dry milling accounts for about 79 percent of ethanol production and wet milling accounts for 21 percent of total ethanol production.

In the wet milling process, corn kernels are fractionated into starch, fiber, corn germ, and protein. Only pure starch is used in the production of ethanol. The wet milling process is very similar to bio-refineries. Various byproducts are produced in the process of producing ethanol, such as corn oil, corn gluten meal, corn gluten feed, and carbon dioxide. In addition, some large wet milling ethanol plants produce vitamins, food and feed additives, aquaculture, and hydroponic production of vegetables. Growth of vegetables in greenhouses is enhanced with excess carbon dioxide produced during the fermentation process.

Corn oil is a premium vegetable oil and is used for human consumption. Due to the high prices of this byproduct, corn oil is not used for the production of biodiesel in the United States. Corn gluten meal contains more than 60 percent protein without fiber and is mostly used in poultry feed rations. Corn gluten feed contains 21 percent protein and is mostly exported to the EU. Carbon dioxide is produced during the fermentation of glucose to alcohol. Some ethanol plants capture raw carbon dioxide to be refined and used in carbonated beverages and dry ice.

The byproducts of the dry milling process are distillers dried grain with solubles (DDGS), condensed syrup, and carbon dioxide. In the conventional dry milling process, corn kernels are ground and water is added, the corn mash is cooked, and enzymes are added to convert starch to glucose. The glucose is converted to alcohol through fermentation. After the alcohol is removed, the liquid passes through a centrifuge and is converted to thin stillage and thick stillage or wet distiller’s grains. Wet distillers grains contain 33 percent solids. The wet distillers grains can be fed to dairy and beef cattle, comprising up to 43 and 37 percent of their rations, respectively. The shelf life of wet distiller grains is very short, approximately 4 days. In order to increase the shelf life of wet distiller’s grains, water must be removed. Distillers dried grains contain 27 percent protein and 87 percent solids. The thin stillage is evaporated and sprayed over the distillers dried grains to make distillers’ dried grains with solubles or sold as condensed syrup as a feed additive.

In new dry milling plants, corn germ and fiber are separated from corn before the starch is converted to glucose in a new process called dry fractionation. Some of the existing ethanol plants separate corn fiber and corn germ as valuable byproducts in addition to distillers dried grains and carbon dioxide. In addition, a few ethanol plants separate corn oil from stillage.

11

Sugar beet processing plants convert sugar beets directly into refined sugar. The byproducts of sugar beet plants include beet pulp and sugar beet molasses. Beet pulp is used as an animal feed. If sugar beet processing plants are located close to livestock and dairy operations, some of the beet pulp is sold as wet pulp. Sugar beet molasses is used as a livestock feed additive.

Sugarcane mills convert sugarcane to raw sugar, which must then be sent to a refinery for conversion to white refined sugar. The byproducts of sugarcane mills, which convert sugarcane to raw sugar, are cane molasses and bagasse. Sugarcane molasses is used in the production of alcohol beverages, fuel alcohol, and for direct human consumption. Modern sugarcane mills also take advantage of sugarcane bagasse for production of steam and generation of electricity within the plant and sell excess electricity to the regional utility grid.

Sugar, in the form of raw or refined sugar, or as sugar in molasses requires no pre-hydrolysis (unlike corn) prior to fermentation. Consequently, the process of producing ethanol from sugar is simpler than converting corn into ethanol.

Starch and Sugar Content of Grains and Sugar Crops

Corn contains between 70 to 72 percent starch. The starch content of corn depends on cultural practices, climate, soil type, weather, and seed varieties. Within the same corn variety, the percent of starch can vary from year to year. Sorghum has a slightly lower starch content than corn. The starch content of sorghum varies between 68 to 70 percent. There is no difference between the starch in corn and in sorghum.

In contrast to grains which contain starch which must be converted to sugars for fermentation, sugar crops contain sucrose, a form of sugar. The sugar content of sugar beets and sugarcane varies by variety, climate, cultural practices, growth season, and weather. Sugar beets generally contain more sugar (sucrose) than sugarcane. The sucrose content of sugar beets ranges from 16 to 18 percent. In contrast, the sucrose content of sugarcane varies between 10 to 15 percent. The sugar recovery rate for sugarcane produced in Florida has generally been higher than recovery rates in Louisiana and Texas. Sugar recovery rates for both sugar beets and sugarcane are highly dependent on the processing equipment used as well as plant variety, cultural practices, and weather conditions.

Feedstock Production Costs

U.S. average operating costs for corn production increased from $157.54 per acre in 1996 to $191.10 in 2005 (Table 9). During this period, expenses for seed, fertilizer, and fuel increased significantly relative to other farm input expenses. Expenses for seed corn increased from $26.65 per acre in 1996 to $39.05 in 2005. Fertilizer costs declined from $47 per acre in 1996 to $35.49 in 2002 and then increased to $52.37 per acre in 2005. Higher expenses for fertilizer in 2005 are directly related to higher prices for natural gas. Expenditures for fuel and electricity increased from $24.43 per acre in 1996 to $38.57 per acre in 2005. In contrast, expenditures for soil conditioners, chemicals, custom operation, repairs, purchased irrigation water, and interest on operating capital were either unchanged or declined during 1996-2005.

12 Table 9. U.S. corn production costs, 1996-2005 Item 1996 2002 2003 2004 2005 (dollars per planted acre) Operating costs: Seed 26.65 31.84 34.83 36.82 39.05 Fertilizer 47.04 35.49 43.41 46.69 52.37 Soil conditioners 0.16 0.12 0.13 0.14 0.14 Manure 0.60 2.13 2.47 2.63 2.63 Chemicals 27.42 26.11 26.20 26.76 26.84 Custom operations 11.30 10.79 11.17 11.55 11.95 Fuel, lubrication, electricity 24.43 18.93 23.06 29.29 38.57 Repairs 15.78 13.91 14.22 15.35 15.94 Purchases irrigation water 0.30 0.22 0.22 0.24 0.25 Interest on operating capital 3.86 1.17 0.82 1.31 3.36 Total operating costs 157.54 140.71 156.53 170.78 191.10

Allocated overhead costs: Hired labor 2.83 3.06 3.14 3.20 3.29 Opportunity cost of unpaid labor 28.99 25.74 26.53 26.98 27.71 Capital recovery of machinery 63.02 55.26 56.67 61.25 63.68 Opportunity cost of land 80.79 87.44 89.20 92.14 94.49 Taxes and insurance 6.98 5.42 5.54 5.58 5.67 General farm overhead 10.38 11.91 12.17 12.41 12.83 Total allocated costs 192.99 188.83 193.25 201.56 207.67

Total production costs 350.53 329.54 349.78 372.34 398.77

Yield (bushels / planted acre) 130 134 149 169 148 Operating cost per bushel 1.21 1.05 1.05 1.01 1.29 Total costs per bushel 2.70 2.46 2.35 2.20 2.70 Source: Economic Research Service, U.S. Department of Agriculture.

Total corn production costs include operating costs as well as charges for paid and unpaid labor, capital recovery of machinery, land charges, taxes, insurance, and general farm overhead. Total costs represent expenses which must be covered for a farm business to remain economically viable over the long run. Total U.S. corn production costs per planted acre averaged an estimated at $398.77 in 2005, up from $350.53 per acre in 1996. With a 2005 average yield of 147.9 bushels per acre, cash operating costs averaged an estimated at $1.29 per bushel, with total production costs estimated to average $2.70 per bushel.

Corn is produced in the Northern Crescent, Northern Great Plains, Heartland, and Prairie Gateway farm production regions. A complete list of U.S. production regions as designated by the Economic Research Service (ERS) of USDA can be viewed on the ERS Farm Resource Region web page http://www.ers.usda.gov/Briefing/ARMS/resourceregions/resourceregions.htm. The Prairie Gateway region, including areas of Texas, Oklahoma, Nebraska, Kansas, Wyoming, and New Mexico, has the highest corn production costs and the Northern Great Plains region, primarily North and South Dakota, has the lowest corn production costs.

Corn production costs by region are not available for 2005. Total operating expenses in the Prairie Gateway region increased from $184.57 per acre in 1996 to $207.31 in 2004, while total operating costs in Northern Great Plains increased from $134.35 per acre in 1996 to $142.48 per acre in 2004. More than 65 percent of corn area in the Prairie Gateway region is irrigated and expenses for fuel and electricity is on average double that of other regions.

13 Average sorghum operating costs increased from an estimated $75.27 per acre in 1996 to $119.05 per acre in 2005 (Table 10). U.S. sorghum is produced in the Heartland, Prairie Gateway, Northern Great Plains, Mississippi Delta, and Eastern Upland regions. Among sorghum growing regions, Northern Great Plains has the lowest and Eastern Upland region has the highest operating costs.

Table 10. U.S. sorghum production costs, 1996-2005 Item 1996 2002 2003 2004 2005 (dollars per planted acre) Operating costs: Seed 6.00 6.63 4.66 5.82 6.17 Fertilizer 17.99 15.10 18.87 22.63 25.23 Chemicals 12.29 11.22 17.32 19.96 20.02 Custom operations 6.23 4.38 9.00 10.38 10.74 Fuel, lubrication, electricity 17.10 24.92 19.88 27.16 35.76 Repairs 13.81 17.48 16.31 18.20 18.90 Purchases irrigation water 0.00 0.00 0.10 0.11 0.11 Interest on operating capital 1.85 0.67 0.45 0.82 2.12 Total operating costs 75.27 80.40 86.39 105.08 119.05

Allocated overhead costs: Hired labor 5.41 7.45 4.73 4.95 5/08 Opportunity cost of unpaid labor 18.58 22.98 25.26 28.68 29.46 Capital recovery of machinery 53.49 60.91 53.71 64.68 67.29 Opportunity cost of land 39.20 21.49 34.02 39.48 40.49 Taxes and insurance 4.98 5.04 4.20 4.95 5.03 General farm overhead 3.76 4.39 7.52 8.98 9.28 Total allocated costs 125.42 122.26 129.44 151.72 156.63

Total production costs 200.69 202.66 215.83 256.80 275.68

Yield (bushels / planted acre) 63 33 47 65 69 Operating cost per bushel 1.19 2.44 1.83 1.62 1.73 Total costs per bushel 3.19 6.14 4.59 3.95 4.01 Source: Economic Research Service, U.S. Department of Agriculture.

Total sorghum production costs, including operating costs plus other allocated costs, averaged an estimated at $275.68 per planted acre in 2005, up from $200.69 per acre in 1996. Sorghum production costs per bushel have varied significantly over the past few years due to variations in annual yield. In 2002, sorghum yields averaged 33 bushels per acre, pushing total production costs up to an estimated $6.14 per bushel. In 2005, with an average yield of 68.7 bushels per acre, total sorghum production costs averaged an estimated at $4.01 per bushel and average operating costs were $1.73 per bushel.

Currently, no ethanol is produced in the United States which utilizes sugarcane or sugar beets as the primary feedstock. Therefore, no cost data are available for determining the cost of converting sugarcane and sugar beets into ethanol as is available for corn-based ethanol production. For this report, production and processing costs of sugarcane and sugar beets were updated from published USDA estimates in order to estimate the cost of producing ethanol from sugarcane or sugar beet juice. It was assumed that if ethanol were to be produced from these feedstocks, these crops would be converted to juice, as is currently done in sugar factories, with an additional processing stage to convert the juice to ethanol.

Updated sugarcane production and processing costs per pound of raw sugar produced are presented in Table 11. These values represent updated cost estimates averaged over the 2003-05 period. Production and processing cost data for sugarcane were obtained from USDA for the

14 years 1992-96 and updated for the 2003-05 period. Sugarcane production costs were updated using prices paid indices for agricultural inputs (USDA, Agricultural Prices). Sugarcane processing costs were updated using price indices for manufacturing from the Bureau of Labor Statistics, as reported in the 2006 Economic Report of the President. Processing labor costs were updated using the employment cost index for manufacturing wages and benefits. Other processing costs were updated using price indices for capital equipment, energy, and other intermediate materials and supplies. Annual cost data are included in the appendix to this report. Average costs shown in the table for sugarcane include estimates for Florida, Hawaii, and Louisiana/Texas. The majority of sugarcane produced in the United States is grown in Florida and Louisiana.

Table 11. Estimated average sugarcane production and processing costs for sugar, 2003-05 1/ U.S. FL HA LA/TX (cents per pound of raw sugar) Production costs: Variable cash costs 10.034 10.990 13.672 8.333 Fixed and other non-cash expenses 5.990 5.431 4.698 6.963 Total production costs 16.024 16.421 18.369 15.296

Processing costs: Variable cash expenses 7.103 6.490 11.412 7.109 Fixed cash expenses 0.912 0.742 1.087 1.092 General and administration 0.984 1.086 0.883 0.888 Total processing costs 8.999 8.319 13.382 9.088

Credits: Molasses 0.581 0.545 0.483 0.646 Bagasse 0.035 0.029 0.000 0.048 Other 0.088 0.043 0.866 0.000 Total credits 0.703 0.617 1.349 0.694

Total processing costs less credits 8.296 7.702 12.033 8.394

Total production and processing costs 24.320 24.122 30.402 23.690

Total variable costs less credits 16.434 16.862 23.735 14.747

Updated cost estimates indicate that the total cost of producing and processing sugarcane into raw sugar is estimated to average 24.3 cents per pound of raw sugar produced during 2003-05. Variable cash production costs include expenses for seedcane, fertilizer, chemicals, fuel, repairs, and other variable costs. Fixed and other non-cash expenses include general farm overhead, taxes and insurance, operating capital, as well as charges for capital replacement of equipment, nonland capital, land, and unpaid labor. Total production and processing costs for Florida were estimated at 24.1 cents per pound, with variable costs at 16.9 cents per pound. Total costs in Louisiana were estimated at 23.7 cents per pound, with variable costs at 14.7 cents.

The average cost estimates for sugarcane for the period 2003-05 may overstate actual costs since the estimates are based on actual costs for the 1992-96 period updated using price paid indices. As a result, these cost estimates do not take into account changes in productivity. Comparable cost estimates for Louisiana from another study estimated total sugarcane production costs of 20.5 cents per pound and variable costs of 13.2 cents per pound in 2005 (Breaux and Salassi, 2005).

15 Average sugar beet production and processing costs were developed from published sugar beet production cost estimates for 2003 and 2004, estimates for 2005, and updated sugar beet processing costs from the 1997-98 period using relevant prices paid indices (Table 12). Current average U.S. sugar beet production and processing costs were estimated at 24.3 cents per pound of refined sugar produced, with variable costs at 13.9 cents per pound. The Great Lakes and Red River Valley regions had the lowest estimated total costs at 25.1 and 23.1 cents per pound, respectively. The Great Plains and Northwest regions had slightly higher estimated costs. Variable sugar beet production and processing costs were estimated to range from 13.5 to 14.5 cents per pound.

Table 12. Estimated average sugar beet production and processing costs for sugar, 2003-05 Red Great River Great U.S. Lakes Valley Plains Northwest (cents per pound of refined sugar) Production costs: Variable cash costs 5.596 6.050 5.136 6.253 6.275 Fixed and other non-cash expenses 7.539 7.924 6.893 9.190 8.347 Total production costs 13.134 13.974 12.029 15.443 14.623

Processing costs: Variable cash expenses 10.779 10.993 10.993 10.460 10.460 Fixed cash expenses 1.060 1.132 1.132 0.955 0.955 General and administration 0.545 0.425 0.425 0.703 0.703 Pulp drying and marketing 1.209 1.158 1.158 1.276 1.276 Total processing costs 13.593 13.707 13.707 13.394 13.394

Credits: Dried pulp 1.928 2.051 2.051 1.752 1.752 Molasses 0.388 0.412 0.412 0.350 0.350 Other 0.156 0.166 0.166 0.143 0.143 Total credits 2.472 2.629 2.629 2.246 2.246

Total processing costs less credits 11.121 11.078 11.078 11.149 11.149

Total production and processing costs 24.255 25.051 23.107 26.592 25.771

Total variable costs less credits 13.902 14.414 13.500 14.467 14.490

Ethanol Yields from Alternative Feedstocks

Production of ethanol in the United States is based primarily on grain as a feedstock. In order to maximize profitability, the production of ethanol must use the least expensive feedstock available per gallon of ethanol produced. Up to this point in time, the most profitable U.S. feedstock has been corn. Conversion factors for grains used as potential feedstock for ethanol production are shown in Table 13.

Table 13. Ethanol conversion factors for grain feedstocks per unit of feedstock Commodity Ethanol conversion factor Barley 1.40 gallons per bushel Corn – wet mill 2.65 gallons per bushel Corn – dry mill 2.75 gallons per bushel Grain sorghum 2.70 gallons per bushel Wheat 2.80 gallons per bushel Source: USDA

16 Approximately 2.65 gallons of ethanol can be produced from a bushel of corn in existing wet mill facilities. Corn-based ethanol plants using the dry mill process can produce 2.75 gallons of ethanol per bushel of corn. Ethanol yield per bushel of corn in the United States has increased significantly since 1980. New ethanol plants utilize the latest varieties of enzymes that convert the maximum amount of starch to glucose and high tolerance yeast that converts the maximum amount of glucose to alcohol. During 2003-05, the corn yield per harvested acre averaged 150.2 bushels. Therefore, the ethanol yield in dry mill plants per acre of corn for 2003-05 was approximately 413 gallons.

Ethanol production per bushel of sorghum is slightly lower than from dry mill corn, at approximately 2.7 gallons per bushel. Furthermore, sorghum yield per acre is relatively low compared with corn but sorghum is more resistant to drought than corn. The 2003-05 U.S. sorghum yield averaged 63.7 bushels per acre. Therefore, one acre of sorghum could produce about 172 gallons of ethanol.

The stoichiometric (theoretical) yield of ethanol from sucrose is 163 gallons of ethanol per ton of sucrose (Rein). The maximum obtainable yield under ideal conditions is estimated at 94.5 percent of theoretical yield, or 154 gallons per ton. Laboratory yields have generally averaged in the range of 149 gallons per ton of sucrose. A yield of 95 percent of the yield obtained in the laboratory, or 141 gallons per ton, is considered to be reasonable under normal plant operating conditions (Rein). This represents 86.5 percent of the theoretical ethanol yield. Estimated ethanol conversion yields from sucrose are listed in Appendix A of this report.

Estimated ethanol conversion factors for sugar per unit of feedstock are shown in Table 14 with comparisons to corn. In sugarcane or sugar beet factories, the cane or beet juice could be used to make ethanol rather than sugar and molasses. The 2003-05 average raw sugar recovery factor from sugarcane for the U.S. was 12.26 percent (ERS, USDA). Based on actual raw sugar and molasses production values from sugarcane, approximately 3.0 gallons of sugarcane molasses is produced as a byproduct for every 100 pounds of raw sugar produced (American Sugar Cane League; Louisiana State University Agricultural Center). Sugarcane molasses has been estimated to be 49.2 percent sucrose (Rein). Using these recovery factors, one ton of sugarcane would yield approximately 277 pounds of sucrose. This would be sufficient to produce 19.5 gallons of ethanol.

Table 14. Ethanol conversion factors for sugar feedstocks per unit of feedstock Commodity Ethanol conversion factor Corn 98.21 gallons per ton (2.75 gallons per bushel) Sugarcane 1/ 19.50 gallons per ton Sugar beets 2/ 24.80 gallons per ton Molasses 3/ 69.40 gallons per ton Raw sugar 135.40 gallons per ton Refined sugar 141.00 gallons per ton 1/ Based on 2003-05 U.S. average raw sugar recovery rate of 12.26% per ton of cane and sucrose recovery from cane molasses at 41.6 pounds per ton of sugarcane. 2/ Based on 2003-05 U.S. average refined sugar recovery rate of 15.5% per ton of beets and sucrose recovery from beet molasses at 40.0 pounds per ton of sugar beets. 3/ Based on an average sucrose recovery of 49.2% per gallon of cane molasses.

17

Sugar recovery is slightly higher in sugar beets compared with sugarcane. The 2003-05 average refined sugar recovery for U.S. sugar beets was 15.5 percent (ERS, USDA). Beet molasses yield is approximately 4 percent by weight per ton of sugar beets with a 50 percent sucrose yield, or roughly 40.0 pounds of sucrose from beet molasses per ton of beets (Holly Hybrids; Southern Minnesota Sugar Cooperative). With this recovery rate, one ton of sugar beets would yield 352 pounds of total sucrose capable of producing 24.8 gallons of ethanol.

Ethanol yields per acre of sugarcane vary depending on the yield per acre of sugarcane and the sugar recovery rate. The 2003-05 average sugarcane yield for Florida was 35.2 tons per acre. Average sugarcane yields in Louisiana and Texas over the same period were 24.3 tons and 38.4 tons per acre, respectively. Sugar recovery rates averaged 12.42 percent in Florida, 11.97 percent in Louisiana, and 10.70 percent in Texas during 2003-05. Using these data, one acre of sugarcane would yield about 695 gallons of ethanol in Florida, 465 gallons in Louisiana, and 665 gallons in Texas.

Sugarcane molasses is approximately 49.2 percent total sugars as sucrose (Rein). Therefore, one ton of molasses would yield 69.4 gallons of ethanol. Raw sugar processed from sugarcane is approximately 96.0 percent total sugars as sucrose. Therefore, one ton of raw sugar would yield 135.4 gallons of ethanol. Refined sugar, either from beets or cane, is approximately 100 percent total sugars as sucrose. Therefore, one ton of refined sugar would yield 141.0 gallons of ethanol.

Using the above sugar to ethanol conversion rates, the quantity of alternative sugar feedstocks required per gallon of ethanol are listed in Table 15. Currently, using corn as the feedstock, the production of one gallon of ethanol would require 0.0101 tons of corn. Using alternative forms of sugar as the primary feedstock, one gallon of ethanol would require 0.051 tons of sugarcane, 0.040 tons of sugar beets, 0.0144 tons of molasses, 0.0074 tons of raw cane sugar, or 0.0071 tons of refined beet sugar.

Table 15. Ethanol conversion factors for sugar feedstocks per gallon of ethanol Feedstock Feedstock quantity per gallon of ethanol Corn 0.0101 tons (0.36 bushels) Sugarcane 0.051 tons Sugar beets 0.040 tons Molasses 0.0144 tons (2.45 gallons) Raw sugar 0.0074 tons (14.77 pounds) Refined sugar 0.0071 tons (14.18 pounds)

Net Feedstock Cost per Gallon of Ethanol

Net feedstock cost per gallon of ethanol is equal to the value of the feedstock minus the value of byproducts divided by the number of gallons of ethanol produced per unit of feedstock. The byproducts of corn-ethanol are distillers dried grains and carbon dioxide for the dry milling process and corn gluten feed, corn gluten meal, corn oil, and carbon dioxide for the wet milling process. About 6 pounds of distillers dried grains with solubles (DDGS/13 percent moisture) are produced per gallon of ethanol in the dry milling process. In the wet milling process, 4.9 pounds

18 of corn gluten feed, 0.9 pounds of corn gluten meal, and 0.6 pounds of corn oil are produced per gallon of ethanol.

The byproducts of sugarcane to ethanol are bagasse, vinasse, and carbon dioxide. In modern sugarcane ethanol plants, bagasse is used for production of steam and electricity. Vinasse is the left over liquid after alcohol is removed (stillage). Vinasse contains nutrients such as nitrogen, potash, phosphate, sucrose, and yeast which could be applied to cropland as a fertilizer. Carbon dioxide could be collected for sale to beverage companies.

Byproducts of sugar beet ethanol plants are beet pulp, carbon dioxide, and vinasse. Wet and dry beet pulp is sold as animal feed. Byproducts of raw sugar, refined sugar, and molasses to ethanol are carbon dioxide and stillage containing yeast and sugar.

The estimated 2003-05 average quantities and values of byproducts, gallons of ethanol produced per unit of feedstock, and net feedstock cost per gallon for converting corn and sugar feedstocks into ethanol are presented in Table 16. With an average market price for corn of $2.16 per bushel during 2003-05, the estimated net feedstock cost per gallon of ethanol produced from corn is $0.53 for a dry mill plant and about $0.40 for a wet mill plant, factoring in byproduct revenues. The net feedstock costs for sugar beets, sugarcane, raw sugar, refined sugar, and molasses account for the acquisition cost of the feedstock and do not include credits for beet pulp, bagasse, vinasse, and carbon dioxide produced during the conversion into ethanol. The value of these byproducts is included in the cost of processing sugar feedstocks into ethanol.

Table 16. Net feedstock cost per gallon of ethanol, 2003-05 Corn Corn Sugar Sugar Raw Refined Dry Wet beets cane Sugar sugar Molasses Milling Milling 1/ 2/ 1/ 2/ 3/ 4/ 5/ (bushel) (bushel) (ton) (ton) (ton) (ton) (ton)

Market price, dollars 2.16 2.16 39.15 28.90 422.00 509.00 63.00

Ethanol byproduct prices: DDGS $/ton 92.08 Corn gluten feed, $/ton 66.30 Corn gluten meal, $/ton 269.00 Corn oil, cents/lb 26.00

Starch (corn) / sucrose, % 72 72 17.6 13.8 96 100 49.2 Gallons of ethanol 2.75 2.65 24.80 19.50 135.40 141.00 69.40

Net feedstock cost, $/gal 0.53 0.40 1.58 1.48 3.12 3.61 0.91 1/ Sugar beet and sugarcane sucrose percent includes sucrose recovery from juice including molasses. 2/ Market prices for sugar beet and sugarcane based on 2003-04 average. 3/ U.S. average raw sugar price. 4/ U.S. average wholesale refined beet sugar price. 5/ Molasses price based on 2003-04 prices in New Orleans, Houston and South Florida.

19 Of the five sugar feedstocks evaluated in this report, molasses is the most cost competitive with corn. Molasses net feedstock cost is about $0.91 per gallon. Net feedstock costs per gallon of ethanol made from sugar beets and sugarcane were $1.58 and $1.48 per gallon, respectively. These feedstock cost estimates are based on the 2003-05 average sugar recovery rates of 15.5 percent for sugar beets and 12.26 percent for sugarcane and on 2003-04 sugarcane and sugar beet market prices per ton. Valuing raw cane sugar and refined beet sugar at market prices, the estimated feedstock cost of using these materials for conversion to ethanol is estimated at $3.12 and $3.61 per gallon, respectively.

According to a 2003 survey, approximately 61 percent of world ethanol production is being produced from sugar crops (Berg, 2004). Ethanol production using sugar as a feedstock is economically feasible in countries like Brazil due to several factors including the relatively low price of raw sugar on the world market in most years and the use of molasses as a major feedstock. Table 17 presents U.S. and world sugar market prices for the 1991-2005 period. Estimated feedstock cost per gallon of ethanol produced has been estimated at $0.30 per gallon for ethanol made from sugarcane in Brazil, compared with $0.97 per gallon for ethanol made from sugar beets in France (Berg, 2004).

Ignoring the current marketing year, U.S. wholesale refined beet sugar prices have ranged from a low of 21.90 cents per pound ($438 per ton) in 2000 to a high of 28.84 cents per pound ($577 per ton) in 1996 (Table 17). Raw cane sugar prices in the U.S. market have ranged from 18.40 cents per pound ($368 per ton) to 22.76 cents per pound ($455 per ton) during 1991 to 2005. Both the raw cane and refined beet sugar prices have been about double the world price.

Table 17. U.S. and world sugar market prices, 1991-2005

U.S. wholesale refined beet U.S. raw cane World refined World raw Year 1/ sugar price sugar price sugar price sugar price

1991 26.57 21.89 13.71 9.26 1992 25.53 21.39 12.67 9.22 1993 24.45 21.49 12.42 9.58 1994 25.60 22.05 14.62 11.25 1995 25.26 22.76 17.97 13.86 1996 28.84 22.50 17.41 12.40 1997 28.06 22.00 14.48 11.67 1998 25.66 22.09 12.36 10.80 1999 27.02 22.07 9.81 7.05 2000 21.90 18.40 9.10 7.53 2001 22.11 21.07 11.35 9.80 2002 25.49 20.65 10.59 7.58 2003 27.02 21.76 10.06 8.01 2004 23.66 20.54 10.25 7.85 2005 25.63 20.94 12.47 10.46 1/Fiscal year Source: Economic Research Service, U.S. Department of Agriculture

20 Processing Costs per Gallon of Ethanol

Processing costs of converting corn and grain sorghum to ethanol are very similar. Currently in the United States, a very small amount of grain sorghum is used in production of ethanol. Ethanol plants have been surveyed by USDA in recent years to obtain data to estimate average ethanol production costs. In late 1999 and early 2000, USDA surveyed 28 ethanol plants, both wet and dry mill, to estimate their 1998 costs of production (Shapouri, Gallagher and Graboski). These ethanol plants processed more than 400 million bushels of corn and sorghum in 1998 to produce more than 1.1 billion gallons of ethanol. The average variable cost of production of ethanol was estimated at 93.9 cents per gallon. The net feedstock cost averaged approximately 53 cents per gallon for dry mill plants and 48 cents per gallon for wet mill plants.

In 2003, USDA surveyed 21 dry mill ethanol plants to estimate their 2002 production costs (Shapouri and Gallagher). These plants produced 550 million gallons of ethanol in 2002. Total production costs, including feedstock costs, averaged 95.7 cents per gallon. Net feedstock costs ranged from 39 to 68 cents per gallon for the plants surveyed.

Ethanol costs of production for the wet milling process were updated from the 1998 estimates to values for 2003-05. Prices paid indices for intermediate materials for energy and other inputs, employment cost index for manufacturing wages, and labor benefits were used to update ethanol production costs for the wet milling process from 1998 to 2003-05. Dry milling ethanol costs of production were updated from 2002 base values to 2003-05 utilizing the above indices used in updating wet mill ethanol costs of production.

Ethanol processing costs per gallon of ethanol produced by the wet milling process increased from $0.46 in 1998 to $0.62 in 2004 and to $0.70 in 2005 (Table 18). Electricity and fuel costs increased from $0.11 per gallon in 1998 to $0.21 cents per gallon in 2005. The net corn cost per gallon of ethanol declined significantly from $0.48 per gallon in 1998 to $0.30 in 2005. Lower prices for corn in 2005, higher prices for corn oil and corn gluten meal increased the value of byproduct credits and lowered the net corn feedstock cost. High costs of energy in 2004 and 2005 were offset by lower prices for corn and higher prices for byproducts.

Ethanol processing costs per gallon for dry mill plants increased from $0.41 per gallon in 2002 to $0.58 per gallon in 2005 (Table 19). Higher natural gas and electricity prices increased the energy expenses used in the production of ethanol from 17 cents per gallon in 2002 to 27 cents per gallon in 2005. Corn prices declined in 2005 due to very large ending stocks. Corn costs per gallon of ethanol declined from $0.89 per gallon in 2004 to $0.71 cents in 2005. The value of byproduct credits declined from 30 cents per gallon in 2003 and 2004 to about 22 cents per gallon in 2005.

21

Table 18. Ethanol cash operating expenses and net feedstock costs, wet milling process 1998 2003 2004 2005 ($/gal) ($/gal) ($/gal) ($/gal)

Feedstock costs 0.9065 0.8464 0.8911 0.7122 Byproduct credits 0.4270 0.3969 0.4438 0.4108 Carbon dioxide 0.0000 0.0000 0.0000 0.0000 Net feedstock costs 0.4795 0.4495 0.4473 0.3014

Cash operating expenses: Electricity 0.0332 0.0460 0.0506 0.0613 Fuels 0.0785 0.1087 0.1197 0.1449 Waste management 0.0263 0.0274 0.0289 0.0305 Water 0.0130 0.0235 0.0143 0.0151 Enzymes 0.0581 0.0604 0.0639 0.0674 Yeast 0.0269 0.0280 0.0296 0.0312 Chemicals 0.0296 0.0410 0.0451 0.0546 Denaturant 0.0322 0.0446 0.0491 0.0594 Maintenance 0.0478 0.0662 0.0729 0.0882 Labor 0.0763 0.0894 0.0916 0.0929 Administrative costs 0.0378 0.0483 0.0531 0.0553 Other 0.0000 0.0000 0.0000 0.0000 Total 0.4597 0.5735 0.6189 0.7008

Total cash costs and net feedstock costs 0.9392 1.0230 1.0662 1.0022

Table 19. Ethanol cash operating expenses and net feedstock costs, dry milling process 2002 2003 2004 2005 ($/gal) ($/gal) ($/gal) ($/gal)

Feedstock costs 0.8030 0.8407 0.8852 0.7074 Byproduct credits 0.2520 0.2995 0.3067 0.2166 Carbon dioxide 0.0060 0.0061 0.0065 0.0068 Net feedstock costs 0.5450 0.5351 0.5720 0.4840

Cash operating expenses: Electricity 0.0374 0.0436 0.0480 0.0581 Fuels 0.1355 0.1581 0.1740 0.2107 Waste management 0.0059 0.0060 0.0064 0.0067 Water 0.0030 0.0031 0.0032 0.0034 Enzymes 0.0366 0.0373 0.0395 0.0416 Yeast 0.0043 0.0044 0.0046 0.0049 Chemicals 0.0229 0.0267 0.0294 0.0356 Denaturant 0.0348 0.0406 0.0447 0.0541 Maintenance 0.0396 0.0462 0.0509 0.0616 Labor 0.0544 0.0557 0.0570 0.0578 Administrative costs 0.0341 0.0368 0.0405 0.0422 Other 0.0039 0.0040 0.0042 0.0044 Total 0.4124 0.4625 0.5025 0.5811

Total cash costs and net feedstock costs 0.9574 0.9976 1.0745 1.0651

22 Estimated processing costs for converting sugarcane and sugar beets into ethanol are shown in Tables 20 and 21. These estimates were developed to be comparable with the corn ethanol processing costs presented in the previous tables. The byproduct credits for sugarcane and sugar beets to ethanol include the value of excess bagasse and other byproducts, such as filter cake and dried pulp. The dried pulp credit is based on the market value of beet pulp of $6 per ton. The credits for bagasse and other credits are indexed to 2005 using the producer price index.

Table 20 includes cane transportation expenses, variable processing expenses, general and administrative expenses as well as credits, estimated for the conversion of sugarcane into

Table 20. Estimated U.S. sugarcane processing costs for ethanol 2003 2004 2005 Average Cents per pound of raw sugar equivalent Processing costs: Cane transportation 1.185 1.288 1.328 1.267 Processing: 2.023 2.195 2.281 2.166 Labor 1.161 1.229 1.225 1.205 Fuel 0.154 0.181 0.219 0.185 Chemicals 0.121 0.134 0.139 0.131 Electricity 0.100 0.119 0.145 0.122 Materials and supplies 0.486 0.533 0.553 0.524 Repairs and maintenance 1.456 1.608 1.675 1.580 Total variable processing costs 4.664 5.092 5.284 5.013

General and administrative: Labor 0.366 0.390 0.389 0.381 Nonlabor 0.566 0.612 0.629 0.602 Total general and administrative costs 0.932 1.001 1.018 0.984

Total processing costs 5.596 6.093 6.302 5.997

Credits: Bagasse 0.037 0.034 0.033 0.035 Other 0.080 0.093 0.090 0.088 Total credits 0.118 0.127 0.123 0.122

Total processing costs less credits 5.478 5.966 6.179 5.875

ethanol. Due to the lower energy requirements in converting sugarcane into ethanol rather than raw sugar, fuel and electricity costs were reduced by half on a per unit basis. Less thermal and electrical energy are required to convert a ton of sugarcane to ethanol than into sugar and molasses. According to Jose Maria P. Zabaleta, Jr., Regional Director of Bronze Oak Limited, which owned many sugar and ethanol plants in the Philippines, the production of ethanol from sugarcane requires one-half of the energy used in the production of raw sugar. Ethanol processing costs from sugarcane were estimated to average $0.059 per pound of raw sugar equivalent during 2003-05.

Table 21 includes beet acquisition expenses, variable processing expenses, general and administrative expenses as well as credits, estimated for the conversion of sugar beets into ethanol. Due to the lower energy requirements in converting sugar beets into ethanol rather than

23 refined sugar, fuel and electricity costs were reduced by half on a per unit basis. Ethanol processing costs from sugar beets were estimated to average $0.051 per pound of refined sugar equivalent during 2003-05.

Table 21. Estimated U.S. sugar beet processing costs for ethanol 2003 2004 2005 Average Cents per pound of refined sugar equivalent Processing costs: Beet acquisition 1.312 1.162 1.157 1.210 Processing: 2.897 3.040 3.165 3.034 Labor 1.350 1.374 1.333 1.353 Fuel 0.776 0.849 0.983 0.869 Chemicals 0.261 0.274 0.277 0.271 Electricity 0.154 0.168 0.195 0.172 Materials and supplies 0.356 0.374 0.377 0.369 Repairs and maintenance 1.098 1.154 1.164 1.139 Total variable processing costs 5.308 5.356 5.486 5.383

General and administrative: Labor 0.252 0.257 0.249 0.253 Nonlabor 0.281 0.296 0.298 0.292 Total general and administrative costs 0.534 0.553 0.548 0.545

Pulp drying and marketing 1.166 1.226 1.236 1.209

Total processing costs 7.008 7.134 7.270 7.137

Credits: Dried pulp 1.973 1.977 1.833 1.928 Other 0.156 0.156 0.156 0.156 Total credits 2.129 2.133 1.990 2.084

Total processing costs less credits 4.879 5.001 5.281 5.053

Average processing and total production costs per gallon of ethanol were estimated for the 2003- 05 period for the five sugar crop feedstocks: sugarcane, sugar beets, molasses, raw sugar, and refined sugar. Processing costs per gallon of ethanol, including yeast and denaturant, for converting sugarcane into ethanol were estimated to average $0.92 during 2003-05 (Table 22). Average total ethanol production costs using sugarcane as feedstock were estimated to be approximately $2.40 per gallon, excluding capital expenditure charges. In this scenario, sugarcane would be crushed with the entire juice being utilized to make ethanol. Production of ethanol from sugarcane juice would not involve the crystallization process, as is currently done in raw sugar production, but would involve some added fermentation expense. The average feedstock cost of $1.48 per gallon in 2003-04 represents approximately 62 percent of the total ethanol estimated production cost of converting sugarcane into ethanol during 2003-05.

Average total ethanol production costs in the United States were estimated to be $2.35 per gallon during 2003-05 utilizing sugar beets as the feedstock, excluding capital expenditure charges (Table 23). Processing costs averaged $0.77 per gallon of ethanol, including the cost of yeast and denaturant.

24

Table 22. Estimated ethanol feedstock and production costs, sugarcane feedstock 2003 2004 2005 Average

Sucrose recovery rate (%) 1/ 14.00 13.62 13.85 13.83

Feedstock required (tons/gal) 0.0507 0.0521 0.0512 0.0513 Feedstock market price ($/ton) 2/ 29.50 28.30 28.90 28.90 Feedstock cost ($/gal) 1.50 1.47 1.48 1.48 Processing costs ($/gal) 3/ 4/ 0.81 0.88 0.91 0.87 Yeast ($/gal) 0.01 0.01 0.01 0.01 Denaturant ($/gal) 0.04 0.04 0.05 0.04 Total cost ($/gal) 2.36 2.40 2.45 2.40 1/ U.S. average sucrose recovery from sugarcane juice (raw sugar and molasses). 2/ 2003-04 sugarcane market price used as estimate for 2005 sugarcane market price. 3/ Sugarcane processing costs less credits. 4/ Based on a sugarcane conversion rate of 14.77 pounds of raw sugar equivalents per gallon.

Table 23. Estimated ethanol feedstock and production costs, sugar beet feedstock 2003 2004 2005 Average

Sucrose recovery rate (%) 1/ 17.30 17.40 18.10 17.60

Feedstock required (tons/gal) 0.0409 0.0408 0.0392 0.0403 Feedstock market price ($/ton) 2/ 41.40 36.90 39.15 39.15 Feedstock cost ($/gal) 1.69 1.51 1.53 1.58 Processing costs ($/gal) 3/ 4/ 0.69 0.71 0.75 0.72 Yeast ($/gal) 0.01 0.01 0.01 0.01 Denaturant ($/gal) 0.04 0.04 0.05 0.04 Total cost ($/gal) 2.45 2.27 2.34 2.35 1/ U.S. average sucrose recovery from sugar beet juice (sugar and molasses). 2/ 2003-04 sugar beet market price used as estimate for 2005 sugar beet market price. 3/ Sugar beet processing costs less credits (including beet pulp). 4/ Based on a sugar beet conversion rate of 14.18 pounds of refined sugar equivalents per gallon.

Since no U.S. ethanol is currently produced from sugar beets, estimated ethanol production costs were based upon sugar beet processing costs plus charges for yeast and denaturant expenses. Crystallization expense savings would be somewhat offset by increased fermentation expenses. Using the 2003-04 average sugar beet market price of $39.15 per ton, the feedstock cost would be approximately $1.58 per gallon of ethanol produced, representing approximately 67 percent of total ethanol production costs. In table 23, the beet pulp byproduct credit is applied to processing costs, rather than being deducted from the feedstock cost.

Table 24 presents estimates of U.S. ethanol production costs using molasses, raw sugar, and refined sugar as a feedstock. Processing molasses, and raw and refine sugar into ethanol requires a simple process. Unlike the conversion of corn into ethanol which requires cooking and enzymes to convert starch to glucose, the processing of molasses, and raw and refined sugar only requires yeast to ferment sugar to alcohol and removing water. The energy requirement for this process is much less according to industry experts; about half of the energy used in the production of ethanol from corn. In order to estimate the costs of processing raw and refined

25 sugar and molasses into ethanol, the energy costs for converting corn into ethanol are adjusted and expenses for enzymes are removed.

Table 24. Estimated ethanol feedstock and production costs for molasses, raw sugar and refined sugar feedstock Molasses Raw sugar Refined sugar

Feedstock required (tons/gallon) 0.0144 0.0074 0.0071

Feedstock price ($/ton) 63.00 422.00 509.00 Feedstock cost ($/gallon) 0.91 3.12 3.61 Ethanol operating costs ($/gal) 1/ 0.36 0.36 0.36 Total cost ($/gal) 1.27 3.48 3.97 1/ Based on 2003-05 average ethanol dry mill operating costs with adjusted energy expenses, less enzyme expense.

Feedstock costs were estimated using the quantity of each feedstock needed to produce one gallon of ethanol and the 2003-05 average market prices for molasses, and raw and refined sugar. Production costs of ethanol using these feedstocks were estimated using the 2003-05 average ethanol costs for a dry mill process less enzyme expenses and adjusted for reduced energy costs. Total ethanol production costs were estimated to be $1.27 per gallon using molasses, compared with $3.48 per gallon using raw sugar and $3.97 per gallon using refined beet sugar. Estimated costs for these three feedstocks exclude any transportation costs of moving the feedstock from a supply location to an ethanol facility.

Production of ethanol from molasses would appear to be relatively cost competitive with corn- based ethanol (Table 25). Ethanol could be produced from either sugarcane molasses or sugar beet molasses. Other studies have shown that molasses-based ethanol production is economically feasible in the United States (Rein). Ethanol is currently being produced from cane or beet molasses in several countries including Australia, England, India, and South Africa (Berg, 2001; Leiper).

Table 25. Comparison of estimated ethanol production costs for various feedstocks ($/gal.) 1/ U.S. U.S. U.S. U.S. U.S. U.S. U.S. Brazil E.U. Corn Corn Sugar Sugar Molasses Raw Refined Sugar Sugar Cost wet dry cane beets 3/ sugar sugar Cane Beets Item milling milling 3/ 3/ 4/ 4/

Feedstock 0.40 0.53 1.48 1.58 0.91 3.12 3.61 0.30 0.97 costs 2/ Processing 0.63 0.52 0.92 0.77 0.36 0.36 0.36 0.51 1.92 costs Total cost 1.03 1.05 2.40 2.35 1.27 3.48 3.97 0.81 2.89 1/ Excludes capital costs. 2/ Feedstock costs for U.S. corn wet and dry milling are net feedstock costs; feedstock costs for U.S. sugarcane and sugar beets are gross feedstock costs. 3/ Excludes transportation costs. 4/ Average of published estimates.

26 The estimated ethanol production costs using sugarcane and sugar beets as feedstocks are more than double the cost of producing ethanol from corn. However, the price of ethanol is determined by the price of gasoline and other factors rather than the cost of producing ethanol from corn. Based on current and near-by futures prices for ethanol, converting sugarcane and sugar beets to ethanol would appear to be profitable, assuming no recovery of capital costs. Over the next several months, the price of ethanol as indicated by futures prices could fall to about breakeven levels for converting sugarcane and sugar beets into ethanol. Over the longer term, the price of ethanol could fall below breakeven levels as crude oil prices decline from current high levels. However, there exists much uncertainty regarding the direction of crude oil and gasoline prices, which could be a major factor in limiting investment in sugarcane and sugar beet ethanol production facilities.

Ethanol Processing Costs in Other Countries

Ethanol is produced in many countries around the world. Over one-half of world ethanol production uses sugarcane, sugar beets or molasses, as a feedstock, while the remainder is produced from grain feedstocks. Table 26 presents total ethanol production for the ten leading ethanol-producing countries for 2004 and 2005. Brazil and the United States are the dominant producers, each accounting for more than 30 percent of world ethanol production.

Table 26. Leading ethanol producing countries, 2004-2005 2004 2005 (mil. gal. (mil. gal. Country per year) (percent) Country per year) (percent)

Brazil 3,989 37.0 Brazil 4,227 35.8 United States 3,400 32.8 United States 3,904 33.1 China 964 9.0 China 1,004 8.5 India 462 4.3 India 449 3.8 France 219 2.0 France 240 2.0 Russia 198 1.8 Russia 198 1.7 South Africa 110 1.0 Germany 114 1.0 United Kingdom 106 1.0 South Africa 103 0.9 Saudi Arabia 79 0.7 Spain 93 0.8 Spain 79 0.7 United Kingdom 92 0.8

Others 1,029 9.6 Others 1,366 11.6

Total 10,770 100.0 Total 11,790 100.0

Source: F. O. Licht

Brazil is the world’s largest producer of sugarcane and centrifugal sugar and, in 2005, the world’s largest producer of ethanol. It is also a leading exporter of raw sugar and fuel ethanol. The oil crisis of the 1970s and the escalating cost of importing foreign oil into Brazil prompted the government to develop programs for promoting the production of sugarcane for the manufacture of fuel alcohol to replace gasoline (Knapp). In November of 1975, Brazil initiated a program, the National Alcohol Program (Proalcool), for the purpose of increasing the production of ethanol from sugarcane and to increase the domestic use of ethanol as a substitute for gasoline. Since that time, Brazil has made tremendous productivity gains in both sugar and

27 ethanol production. Because it has the developed infrastructure to produce either sugar or ethanol from sugarcane, it is one of the few countries that can adjust sugar production rapidly to react to changing world sugar market conditions. In 2005, less than half of its sugarcane production was ground for sugar.

Total world sugar production for 2005/06 is projected at 144,151 million metric tons (Table 27). Brazil is the world’s largest producer of sugar, accounting for 20 percent of total world production with an estimated 28.700 million metric tons of sugar production. All of Brazil’s sugar production is from sugarcane. The European Union, the world’s leading sugar beet producer, is ranked second with 21.233 million metric tons of sugar production. The United States is the world’s fifth leading sugar producer with an estimated total beet and cane sugar production level of 6.824 million metric tons.

Table 27. Projected world centrifugal sugar production and exports, 2005/06

Projected Projected Rank Country 2005/06 Percent Country 2005/06 Percent production of total exports of total (1,000 metric tons, (%) raw value)

1 Brazil 28,700 19.9 Brazil 18,250 38.2 2 European Union 21,233 14.7 European Union 7,130 14.9 3 India 18,430 12.8 Australia 4,240 8.9 4 China 10,500 7.3 Thailand 2,700 5.7 5 United States 6,824 4.7 Guatemala 1,391 2.9 6 Mexico 6,000 4.2 South Africa 1,300 2.7 7 Australia 5,200 3.6 Cuba 1,032 2.2 8 Thailand 4,330 3.0 Columbia 970 2.0 9 Pakistan 2,890 2.0 Argentina 530 1.1 10 South Africa 2,665 1.8 Mexico 344 0.7

Other countries 37,379 25.9 Other countries 9,833 20.6

World total 144,151 100.0 World total 47,720 100.0 Source: World Sugar Situation, Foreign Agricultural Service, U.S. Department of Agriculture.

Brazil is the world’s largest exporter of sugar. In 2005/06, Brazil is expected to export 18.250 million metric tons of sugar, accounting for 38.2 percent of total world exports. The European Union is expected to export 7.130 million metric tons, 14.9 percent of total world exports. Other major sugar exporting countries include Australia and Thailand, each accounting for less than 10 percent of world sugar exports.

Brazil produces two types of ethyl alcohol or ethanol from sugarcane: hydrated and anhydrous. Hydrated ethanol (with a 4 percent water addition) is used to power alcohol and “flex fuel” vehicles while anhydrous ethanol is used as a gasoline oxygenate and a substitute for tetraethyl lead and MTBE which is a petroleum derivative (UNICA). Ethanol in Brazil is produced at sugarcane mills with adjoining distillery plants, producing both sugar and ethanol, and at independent distilleries, producing only ethanol. The sugar and ethanol industry in Brazil has invested approximately $40 million per year in research and development since 1979 (UNICA). This research has contributed to the dramatic increase in sugar and ethanol productivity in Brazil over the past thirty or so years. In 1975, sugarcane production in Brazil averaged 16 tons per acre. By 2004, sugarcane yields were averaging over 32 tons per acre. Ethanol production from

28 sugarcane increased from 305 gallons per acre to about 590 gallons per acre over this same period.

The most critical factors that determine the economic feasibility of ethanol production from agricultural product feedstocks are ethanol yields per unit of feedstock and the cost of the feedstock. Figure 1 presents the relationship between estimated ethanol yield per acre for three ethanol feedstocks: France—sugar beets, Brazil—sugarcane and the United States—corn.

Based on sugar beet yields in France, one acre of sugar beets could produce approximately 750 gallons of ethanol per acre and an acre of sugarcane in Brazil could produce 590 gallons of ethanol per acre. U.S. corn production produces roughly 370 to 430 gallons of ethanol per acre, depending upon corn yields.

When the ethanol yield per ton of feedstock is compared, corn is by far the leader (Figure 2). A ton of U.S. corn can yield approximately 100 gallons of ethanol, compared with 25 gallons from a ton of French sugar beets and 20 gallons from a ton of Brazilian sugarcane. However, it is the cost of producing that feedstock which ultimately determines the relative economic feasibility of various feedstocks. In this regard, Brazil has a significant comparative advantage, with estimated gross feedstock costs of about 30 cents per gallon of ethanol produced (Figure 3), compared to 97 cents per gallon for sugar beets in France and 80-85 cents per gallon for corn in the U.S.

The primary factor influencing the dominance of Brazilian sugarcane for ethanol production has been government policies affecting the production and use of ethanol (Bolling and Suarez). About one-half of the sugarcane produced in Brazil is used for ethanol production, which has no government limits on production. The amount of alcohol blended into gasoline is dictated to the market by law or decree, which directly affects Brazilian producer prices of sugarcane, consumer prices for sugar and ethanol, and sugar quantities both produced and consumed in Brazil, as well as world prices for raw and refined sugar (Schmitz, Seale and Buzzanell).

Brazil is the world leader in the production of ethanol from sugarcane. Sugarcane now provides approximately 13 percent of Brazil’s energy, replacing fossil fuels for motor vehicles and bagasse for heat and power (Poppe and Macedo). Ethanol production from sugarcane is very economical in Brazil because of two primary reasons. Brazil dropped support of sugar prices to support the ethanol industry with government established mandates for the blending of ethanol with gasoline. This drastically lowered the cost of the feedstock, sugarcane, and created a demand for and supported the price of ethanol. In addition, Brazil’s vast land area of cultivatable acreage means that land devoted to sugarcane production for ethanol is not in competition with land devoted for food production. As a result, the cost of producing ethanol in Brazil is in the $0.68 to $0.95 per gallon range (Coelho; United Nations Environment Programme; International Energy Agency, 2004).

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Figure 1 - Ethanol yields per acre (gallons per acre)

1000 800 600 400 200 0 France (beets) Brazil (cane) U.S. (corn) Source: World Fuel and Ethanol Analysis and Outlook, F.O. Licht

Figure 2 - Ethanol yields per ton of feedstock (gallons per ton)

100 80 60 40 20 0 France (beets) Brazil (cane) U.S. (corn) Source: World Fuel and Ethanol Analysis and Outlook,F.O. Licht

Figure 3 - Gross feedstock cost per gallon (cents per gallon of ethanol)

120 100 80 60 40 20 0 France (beets) Brazil (cane) U.S. (corn) Source: World Fuel and Ethanol Analysis and Outlook,F.O. Licht

30 Figures 4 and 5 illustrate the comparative advantage Brazil has in terms of sugar feedstock costs. The world raw cane sugar price is substantially less than the U.S. raw cane sugar price and the U.S. wholesale refined beet sugar price. The sugarcane price per ton paid to Brazilian sugarcane growers closely tracks the world raw sugar price. From 1985 to 2000, the world raw sugar price varied in the 4 to 13 cents per pound range. Over the same period, the sugar cane price paid to growers in Brazil ranged from about $7.00 to $14.00 per ton of cane. These relatively low sugar prices paid to growers in Brazil is largely responsible for their cost advantage on sugar-based ethanol.

Figure 4 - U.S. and World Sugar Prices

35 30 25 20 15 10 Cents per pound Cents 5 0 1991 1993 1995 1997 1999 2001 2003 2005 Year

U.S. Refined Beet Sugar Price U.S. Raw Cane Sugar Price World Raw Cane Sugar Price

Source: Economic Research Service, USDA.

Another factor lowering the cost of ethanol plants in Brazil is the availability of feedstock through much of the year. In Brazil, in the Center South, sugarcane ethanol plants operate 9 months out of the year as the climate permits harvesting over several months. If new sugarcane ethanol plants are built in the sugarcane producing states of Florida, Louisiana, and Texas, these plants would be able to operate 3 to 6 months per year.

A 1994 report by the International Energy Agency (IEA) evaluating the costs and benefits of biofuels included an analysis of producing ethanol in the EU from agricultural feedstocks (International Energy Agency, 1994). Input requirements and production costs were estimated for ethanol production in the EU utilizing corn, wheat, and sugar beets as a feedstock. Results found were similar to relationships presented in this report for the United States. Under current technology, ethanol production in the EU was less expensive using grain as a feedstock rather

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Figure 5 - World Sugar Prices vs. Sugar Cane

16 14 12 10 8 6 4 2 0 1985 1987 1989 1991 1993 1995 1997 1999 Year

World Raw Sugar Price (cents/lb) Brazilian Sugarcane Price ($/metric ton)

Source: Schmitz, Seale and Buzzanell, 2002. than sugar beets. Total ethanol production costs, in 1991 U.S. dollars, were estimated to range between $1.84 and $2.51 per gallon of ethanol using sugar beets as the feedstock, compared with corn at $1.01 to $1.39 per gallon. More recent studies estimated ethanol production costs in the EU at about $2.89 per gallon using sugar beets as a feedstock (International Energy Agency, 2004). Sugar beets grown for ethanol production in the EU are generally produced outside of the quota and thereby receive a price per ton of beets freely negotiated between farmers and processors rather than receiving the relatively higher B-quota price (Enquidanos et al., 2002).

Capital Expenditure Costs

Although capital expenditure costs for any type of processing facility are dependent upon the circumstances involved with constructing a particular facility in a given location, capital expenditure data from existing ethanol facilities may provide a reasonable range of what the expected capital costs would be for new U.S. facilities utilizing sugar crops as a feedstock. Economies of scale have been shown to exist in construction costs of ethanol plants (Gallagher, Brubaker and Shapouri; Bullock). However, average capital costs for plants of a given size at a particular location is still highly variable due to costs associated with unique circumstances, such as utility access and environmental compliance.

32 New construction costs for U.S. corn ethanol plants averaged $1.57 per gallon of annual capacity in a recent survey (Shapouri and Gallagher). Capital costs across plants surveyed varied significantly, from $1.05 to $3.00 per gallon of ethanol. Data from Louisiana suggests that a 32 million gallon per year (MGY) ethanol plant, utilizing molasses as a feedstock, could be built for $41 million, or $1.28 per gallon of annual capacity (Rein). Recent data from Brazil indicates that a 45 MGY plant utilizing sugarcane as a feedstock could be built for $60 million, or $1.32 per gallon of capacity (Coelho).

Estimated capital investment costs for two sizes of ethanol plants using alternative sugar feedstocks developed by PRAJ Industries, a major developer of sugar ethanol technology in India, with comparisons to corn, is shown in Table 28 (Urbanchuk). A dry mill plant would require an estimated capital investment of $1.50 per gallon of capacity for a 20 MGY plant. A 40 MGY plant would require an investment of $1.30 per gallon of capacity. With sugarcane or sugar beets as the feedstock, capital investment would be higher than for corn, primarily due to feedstock preparation. A 20 MGY plant utilizing sugarcane or sugar beets would require $2.15 of capital investment per gallon of annual capacity and a 40 MGY plant would require $1.65 per gallon of annual capacity. A new ethanol plant that utilizes cane/beet juice or cane/beet molasses would require capital investment similar to that for corn. Capital investment for the two plant sizes utilizing cane/beet juice as a feed stock are estimated at $1.40 and $1.08 per gallon of annual capacity. Utilizing cane/beet molasses as a feedstock, estimated capital investment is $1.35 and $1.04 per gallon of annual capacity.

Table 28. Estimated capital investment costs for alternative sugar feedstocks Plant size (million gallons per year – MGY) 20 MGY 40 MGY Feedstock ($ per gallon of capacity) ($ per gallon of capacity) Corn $1.50 $1.30 Sugarcane $2.10-$2.20 $1.63-$1.68 Sugar beets $2.10-$2.20 $1.63-$1.68 Cane/beet juice $1.35-$1.45 $1.05-$1.10 Cane/beet molasses $1.30-$1.40 $1.03-$1.05 Source: PRAJ Industries

Based on these estimates of capital expenditures, Table 29 presents estimated annual capital investment expense per gallon of annual capacity for ethanol plants using alternative feedstocks. These estimated annual costs represent initial capital investment values financed over a twenty- year period at an annual interest rate of 7.0 percent. Annual capital investment expense for plants utilizing cane/beet juice or molasses are very comparable to values for plants using corn as a feedstock. Ethanol plants that use sugarcane or sugar beets as an ethanol feedstock stock

Table 29. Annual capital investment expense for alternative feedstocks 1/ Plant size (million gallons per year – MGY) 20 MGY 40 MGY Feedstock ($ per gal. Capacity) ($ per gal. capacity) Corn $0.14 $0.12 Sugarcane $0.20 $0.16 Sugar beets $0.20 $0.16 Cane/beet juice $0.13 $0.10 Cane/beet molasses $0.13 $0.10 1/ Assumes 20 year investment at a 7 percent rate of interest.

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would require more capital investment as a result of having equipment to process and prepare the feedstock and, as a result, would have higher annual capital investment expenses.

Capital expenditures for an ethanol plant utilizing sugar crop feedstocks can vary significantly based upon several factors including technology, plant size, and location. It would be expected that capital expenditures would be less for the addition of an ethanol facility adjacent to an existing sugarcane or sugar beet factory than for a stand alone facility.

Potential Location of Sugar Ethanol Plants

The optimal location of an ethanol production facility is largely dependent on being in close proximity to its feedstock supply, regardless of which feedstock is being utilized. The U.S. corn ethanol industry is a good illustration of this relationship. Most of the current ethanol plants in the United States utilizing corn as the feedstock are located within close proximity of major corn producing areas. If sugarcane or sugar beets were to be utilized as a feedstock in producing ethanol, those plants would need to be located close to the location of their feedstock production. This section briefly discusses the current location and processing capacity of sugarcane and sugar beet processors and raw cane refineries in the United States.

Sugar beets are processed directly into white, refined sugar. An annual crop, sugar beets are grown in many of the same states that produce corn. Table 30 presents data on the number of sugar beet factories in each state and daily slicing capacity. In 2005, there were 23 sugar beet factories located in nine states. Fourteen of the 23 factories are located in Idaho, Michigan, Minnesota, and North Dakota. Factories in these states have 71 percent of the total daily sugar beet processing capacity of 163,900 tons of beets. The average daily capacity per factory in 2005 was approximately 7,100 tons.

Table 30. Location and daily capacity of U.S. sugar beet factories, 2005 Number Daily capacity State of factories (tons of beets)

California 2 12,600 Colorado 2 10,000 Idaho 3 33,100 Michigan 4 20,900 Minnesota 4 38,600 Montana 2 11,300 Nebraska 1 4,800 North Dakota 3 24,200 Wyoming 2 8,400

Total 23 163,900 Source: U.S. Beet Sugar Association.

Sugarcane is a sub-tropical perennial plant which must be grown in a warmer climate than sugar beets. As a result, sugarcane grown in the United States is produced in the very southern

34 sections of Florida, Louisiana, and Texas and in Hawaii. Mainland sugarcane mills have access to truck, rail, and, in several cases, barge transportation of raw sugar. In 2004, Florida had 6 sugarcane mills with a total daily crushing capacity of 124,300 tons of cane (Table 30). Sugarcane mills in Louisiana are more numerous but generally smaller in size than mills in Florida. Fifteen sugarcane mills were operating in Louisiana in 2004 with a total daily capacity of 175,500 tons. Two or three of these mills have since closed through mergers with existing mills. One mill is located in Texas with a daily capacity of 11,000 tons. Two relatively small mills are located in Hawaii.

Table 31. Location and daily capacity of U.S. sugarcane mills, 2004 Number Daily capacity State of mills (tons of cane) Florida 6 124,300 Hawaii 2 10,500 Louisiana 15 175,500 Texas 1 11,000

Total 24 321,300 Source: Gilmore Sugar Manual, 2004-2005.

Raw sugar produced by sugarcane mills must be refined before sale to end users. In 2005, there were five U.S. cane sugar refining companies operating (Table 32). These companies are currently operating eight refineries. The one refinery in California processes raw sugar from Hawaii. All remaining refineries process raw sugar produced on the mainland. Total 24-hour melting capacity of existing cane refineries is 20,350 tons, raw value.

Table 32. Location and melting capacity of U.S. cane sugar refining companies, 2005 Refinery Melting Company Location Capacity 1/

American Sugar Refining Co. Baltimore, MD 3,000 Chalmette, LA 3,100 Yonkers, NY 2,000

C & H Sugar Co., Inc. Crockett, CA 3,400

Florida Crystals Refinery South Bay, FL 1,100

Imperial Sugar Co. Port Wentworth, GA 3,150 Gramercy, LA 2,200

United States Sugar Clewiston, FL 2,400 1/ 24-hour melting capacity, short tons, raw value Source: Sugar Journal, April 2005

Ethanol - New Technologies in Production and Conversion

This section presents an overview of new technological developments in the production of ethanol feedstocks and the conversion to ethanol. The first section discusses advances in

35 technology in corn-based ethanol production and the second section discusses issues related to sugar production and conversion to ethanol.

Corn. Yields per acre for corn in the United States have increased significantly since 2000. In 2004/05, the U.S. average corn yield increased to a record high of 160.4 bushels per acre. High corn yields in recent years are due primarily to genetically modified seed corn as well as optimum weather for growing corn. In the United States, a large percentage of corn and soybean acreage is now planted with genetically modified varieties. Genetically modified corn protects the plants from insects and diseases and increases the plant’s tolerance to herbicides and drought. In addition, advanced technologies in farm management, such as global positioning systems (GPS), adoption of reduced till and no till farming practices, slow release fertilizer, yield mapping, and improved irrigation systems have increased energy efficiency in farming.

Yield mapping using GPS has improved the application rate of nutrients and chemicals per acre for corn and other crops. During harvest, crop yields are measured in each location of the field as well as density of weeds entered into a computer. The yield map is produced based on information stored in the computer. In the following year, the information in the yield map is used to monitor and control fertilizer and herbicide application rates.

New farm machinery and farm equipment have also increased the productivity of the agricultural sector. For example, density of seed per acre can be controlled by a computer connected to the seed planter. Similar technology can be used in application of fertilizers and pesticides. New and modern irrigation systems such as center pivot and drip irrigation significantly reduce water use. In contrast to a gravity system which floods part of a field and can cause soil erosion and crop losses, new irrigation systems provide water and nutrients to the root of the crop instead of watering the whole field.

Although corn ethanol plants in the United States rely on external sources of energy, these ethanol plants are very energy efficient. Ethanol plants purchase natural gas to produce steam required for plant operation and electricity to run pumps, fans, and motors. Due to the high prices of natural gas, new ethanol plants under construction are looking for alternative forms of energy instead of natural gas. Some of the new plants are able to burn coal instead of natural gas for both production of steam and electricity for plant operation and any excess electricity is sold.

There are many energy saving technologies used in corn ethanol plants. Heat exchangers are used widely in ethanol plants to capture excess heat from one process and use it in another process. In conventional ethanol plants, in order to liquefy and saccharify starch to glucose, starch is cooked at 100 to 110 degrees Celsius and then the corn mash is cooled to 36 degrees Celsius and yeast is added to ferment glucose to alcohol. A heat exchanger is used to capture the heat from cooking starch for use in the distillation process.

In the early 1980s, in order to dry alcohol to 99.9 percent, isotropic distillation was used to remove the water. Benzene and cyclohexane (both carcinogenic) were used to remove the water. Today, molecular sieves are used for dehydrating ethanol. Replacing isotropic distillation with molecular sieves eliminates the use of carcinogenic material, eliminates one distillation process, saves as much as $25,000 per installation, and reduces energy costs by up to 20 percent.

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Last year, two new energy saving technologies were introduced in the market and used by ethanol plants. One of these new technologies eliminates the cooking process in converting starch to glucose. New enzymes are being developed by enzyme companies that can liquefy and saccharify starch to glucose at 32 degree Celsius. This process is estimated to result in energy savings of about 1,500 to 1,800 BTUs per gallon of ethanol.

Dry fractionation is a process used in dry milling corn-based ethanol. This process separates corn fiber and corn germ from corn kernels before converting corn starch to ethanol. Corn germ contains corn oil. Corn fiber could be used as animal feed, and also could be burned as a source of energy in ethanol plants instead of natural gas. In addition, removing corn fiber and corn germ from corn kernels increases the through put of ethanol plants and reduces energy used per gallon of ethanol. DDGS produced under this process has very low fiber and could be fed to poultry and hogs.

Prior to the 1980s, process automation was not efficient. The systems were bulky and required direct inter-connections with the process with several satellite control rooms for various parts of the process and required sophisticated maintenance by skilled technicians. Distributed control systems (DCS) were introduced in late 1980s, enabling centralized process monitoring and control. This system allowed process instruments, output to pumps and valves, and controller settings to be driven from a computer console located in a central control room.

During the 1990s, these systems grew in capability as computer power increased. This single aspect of production improvement has reduced labor requirements by more than 50 percent over the past 15 years. The advantage of DCS systems include: (1) reduction in manpower by allowing one operator to monitor and control several processes at once and (2) an increase in overall plant efficiency by fine-tuning process parameters using real-time data and sophisticated analysis.

Most of the attention of the research community today is focused the development and implementation of cellulosic biomass ethanol production. Under this process, cellulosic biomass is converted to sugars by hydrolysis and then fermented to produce ethanol. One of the major advantages of this process is that it will dramatically expand the list of feedstocks which could be used in ethanol production. Potential ethanol feedstocks for this process include corn stalks, rice straw, wood chips, and fast-growing trees and grasses.

Sugar. In the United States, sugarcane yield per acre has changed only slightly over the past 25 years. From 1980 to 2005, sugarcane tonnage per acre increased by 13 percent in Florida and 6 percent in Louisiana. In contrast, from 1975 to 2005, sugarcane yields in Brazil about doubled. Genetically modified varieties of sugarcane now are extensively planted in Brazil.

In the Center South region of Brazil, sugarcane yield per acre increased from 55 tons per acre in 1975 to over 90 tons per acre in 2003 with a 14.6 percent sugar content. In addition, sucrose content of sugarcane in Brazil increased by 8 percent during 1975-2000. In contrast, sucrose content of sugarcane did not change significantly in the United States. In the United States,

37 sugarcane and sugar beet yields per acre and sucrose content per ton of cane could be increased if new varieties of sugarcane and sugar beets are developed.

Sugar recovery in sugar beets is higher than in sugarcane due to the higher sucrose content of sugar beets and the process that removes sugar from sugar beets. In all sugar beet plants, the diffusion system (reverse osmosis) is used to remove sugar from sliced sugar beets. In this process, the maximum amount of sugar migrates from sliced beets into water. In contrast, in sugarcane mills, sugarcane is washed with water and then squeezed (ground) through a series of press mills to remove the sugar. In this process, some percentage of sugar is lost in the wash water as well as in filter cake and bagasse. Adopting the diffusion process in existing sugarcane mills in the United States would increase the sugar yield per ton of cane.

Newly developed biotechnology crops such as sugarcane, sugar beets, and corn have new attributes including high yield, high sucrose content, high oil content, or high starch content. Some of the biotechnology crops are commercially available, such as vitamin A rice, high yielding, high sugar content sugarcane and sugar beets, corn with high oil content, corn with high fermentable starch, and corn with alpha amylase enzyme. The major objectives of producing these biotech crops are to increase yield, increase the efficiency of conversion into ethanol and other products, and create high value byproducts.

Sugarcane mills in Brazil, as is the case with dry and wet milling corn ethanol plants in the United States, have become more efficient during the past two decades. Sugarcane mills in Brazil are used for both production of sugar and ethanol. Molasses is diluted with water and added to the sugarcane juice stream for production of more ethanol. Sugarcane plants in Brazil are more efficient and are more capital efficient than U.S. mills. Sugar/ethanol mills in Brazil process cane for a longer time during the year (May-December). In contrast, sugarcane mills in Florida and Texas operate 5-6 months with mills in Louisiana operating only 3-4 months. These sugarcane mills remain unused during the remaining months of the year.

Existing sugarcane mills and sugar beet plants could be modified to produce both sugar and ethanol in the same plants. Rather than build a stand alone plant to convert sugarcane or sugar beets into ethanol, it may be more economical to modify existing plants for the production of ethanol. Less capital investment is required to modify an existing sugarcane or sugar beet mill for production of both sugar and ethanol. The front end of a sugar mill is the same for production of sugar or ethanol. Beet and cane juices are extracted in the first stage of converting sugarcane or sugar beets into either ethanol or raw cane or refined sugar. To make ethanol in existing sugarcane or sugar beet mills, fermenter tanks, as well as distillation columns, molecular sieves, and ethanol storage would need to be added to existing facilities. Since part of the juice stream is diverted to the fermenter for ethanol production, grinding capacity remains the same. It is not necessary to change the boiler system which requires major capital investment.

According to Mr. Zabaleta, cost of production of cane-ethanol could significantly decline if excess bagasse is converted to electricity for sale to the power grid. Bagasse accounts for 27 percent of sugarcane weight and contain 7,000 to 8,000 BTUs of energy per dry pound. Few sugarcane mills in the United States produce electricity as a byproduct of raw sugar production. The remaining sugarcane mills burn bagasse for production of steam in old and inefficient

38 energy boiler systems. In order to take advantage of excess bagasse and sugarcane trash, new cogeneration systems could be added to existing sugar mills to reduce the cost of producing ethanol.

In the United States, renewable electricity made from biomass produced under the close loop system is eligible to receive 1.9 cents per Kwh credit under the 2005 Energy Policy Act of 2005. Renewable electricity made from bagasse could be sold at higher prices to the gird in addition to receiving the 1.9 cents per Kwh incentive.

New technologies in cane and sugar beet production such as precision agriculture, more energy efficient irrigation systems, genetically modified seed with higher yield per acre and with higher sucrose content as well as integrated harvesting and transport systems could be adopted to lower sugarcane and sugar beet production costs. And, advanced processing technologies such as much higher level of industrial automation, new separation process, less labor use, higher sucrose recovery and higher fermentation productivity could be adopted to lower the processing costs of sugarcane and sugar beets into ethanol.

Raw sugar and refined sugar could be converted to ethanol with minimum amount of capital investment. Sugar is converted to syrup by melting sugar in water, using steam. New capital investment for sugar storage and melting tanks would be required if existing corn ethanol plants operators decided to mix beet and cane sugar with corn-glucose. In addition, the computer software used for operating the ethanol plant may need to be modified for use of a mixed stream of sugar and glucose. However, the opportunity cost of raw or refined sugar, as noted earlier in this report, remains a major obstacle for this to be economically feasible.

For crops such as sugarcane in the United States, current research and development into the cellulosic process for producing ethanol production appears to offer some potential. Australia, a major sugarcane producing country is also evaluating the prospects for cellulosic conversion (Bullock). Ethanol can be made from plant cellulose, but it is more difficult than using starch from grains or sugar from sugar beets or sugarcane as the primary feedstock. Current research is underway using sulfuric acid to break down cellulose and hemicellulose into fermentable sugars. The Energy Policy Act of 2005 provides for a minimum of 250 million gallons of cellulosic ethanol in the RFS by 2013.

The Biomass Research Development Act of 2000 established the Biomass Research and Development Initiative. Specific objectives of this initiative are: (1) to develop technologies and processes necessary for abundant commercial production of biobased fuels at prices competitive with fossil fuels, (2) to develop high-value biobased products to enhance the economic viability of biobased fuels and power, and (3) to develop a diversity of sustainable domestic sources of biomass for conversion to biobased fuels and biobased products.

U.S. Sugar Policy and the Market Outlook for Sugar

Domestic prices of sugarcane and sugar beets are supported through non-recourse loans to sugarcane and sugar beet processors. As domestic production of both beet and cane sugar increased during the late 1990s, U.S. sugar import levels were reduced to offset the increase in

39 production, thereby limiting forfeitures and Federal price support outlays. However, during FY 2000, domestic production of beet and cane sugar surged to over 9 million short tons, raw value (Economic Research Service, USDA). Sugar imports could not be reduced below minimum levels established under the Uruguay Round Agreement on Agriculture (URAA) to offset this increase in production causing the stocks-to-use ratio to increase to 22.0 percent at the end of the 1999/2000 marketing year, up from 16.0 percent the year before. Raw sugar prices averaged 18.40 cents per pound during 1999/2000, down from 22.07 cents the prior year and wholesale refined beet sugar prices dropped to 21.90 cents per pound, down from 27.02 cents per pound in 1999/98. Reflecting the low price for sugar, processors forfeited over 1 million tons of sugar to the Commodity Credit Corporation (CCC) under the sugar price support program.

To bring domestic sugar supplies and use into balance and prevent continued forfeitures of sugar to CCC under the price support program, the 2002 Farm Bill authorized marketing allotments on domestic production. The institution of marketing allotments enabled USDA to limit domestic marketings of sugar and maintain prices for sugar at or near the price support level of 18 cents per pound for raw sugar and 22.9 cents per pound for refined sugar with limited forfeitures in 2002/03 and 2003/04.

In 2004/05, U.S. sugar production dropped to 7.9 million tons, down from 8.6 million tons the previous year, as hurricanes reduced sugarcane production in Florida. Sugar production declined further to 7.4 million tons in 2005/06, as hurricanes struck Florida and Louisiana lowering cane production and damaging cane processing facilities in those two States. Imports of raw cane and refined sugar were increased to offset the production shortfalls in 2004/05 and 2005/06.

U.S. prices of refined and raw sugar have increased considerably, even though sugar imports are projected to increase from 2.1 million tons in 2004/05 to nearly 3.2 million tons during the 2005/06 marketing year. In May 2006, the price of refined sugar averaged 35 cents per pound, compared with 25 cents in May 2005, a 40-percent increase, while the price of raw sugar was about 7 percent higher than last year. Domestic prices have increased to attract imports whose value on the world market has also risen due to reduced export prospects for Brazil and the EU. In May 2006, the world price of raw sugar averaged 18 cents per pound, compared with 8.5 cents in May 2005. The prospects for a record sugar harvest in Brazil, the world’s largest sugar producer, caused world sugar prices to decline to 16 cents per pound in mid-June 2006.

For the 2006/07 marketing year, U.S. sugar production is forecast to rebound to 8.2 million tons. Even though production is forecast to be the highest since the 2003 crop, sugar use is once again forecast to exceed available sugar supplies, including imports at the minimum level permitted under the URAA minus a shortfall of 50,000 tons. Under this import assumption, the ending stocks-to-use ratio for sugar is projected to fall from 13.2 percent for the current marketing year to 7.7 percent for 2006/07. Given this unusually low stocks-to-use ratio, it is very likely that imports will exceed the minimum level under the URAA and prices for raw and refined sugar well continue to remain well above loan forfeiture levels for the 2006/07 marketing year.

40 Several significant structural changes could alter the U.S. and world sugar markets. The EU long has been a major supplier of sugar to the world market and a contributor to periods of low world market prices. That could change as the EU implements reforms under the Common Agriculture Policy (CAP). Changes to the EU sugar regime under CAP reform are anticipated to reduce EU’s sugar exports by about five million tons each year, resulting in a significant boost in the world price for sugar. In fact, the EU could become a net importer of sugar, since its commitments to import sugar from its traditional suppliers could exceed its permitted subsidized exports.

Another major development in the world sugar market is the growing role of renewable fuels from sugarcane as petroleum prices continue to be record-high. This already is having a perceptible influence on the world sugar market and, as more and more sugar producing countries explore ethanol production, could have a considerable long-term impact. Continuing pressure on world energy prices is expected to divert more sugarcane, chiefly Brazilian, into ethanol production, which would tend to boost world sugar prices. While the world sugar price is expected to remain below the current U.S. domestic support price, increasing demand for ethanol and firmer world prices could reduce the incentive to supply the U.S. market with sugar should U.S. sugar production again be adversely affected by weather or other factors.

With respect to the U.S. sugar market, future trade agreements could to lead to pressure for increased access to the U.S. sugar market. The prosperity of the domestic farm sector and food industry is highly contingent upon gaining greater access to global markets. This has spurred the pursuit of both multilateral and bilateral trade agreements to provide that access. As the U.S. continues to seek expanded opportunities for our farmers and ranchers in international markets through free trade agreements, trading partners in turn will request increased access to the U.S. sugar market, especially as long as our domestic price substantially exceeds the world price.

On January 1, 2008, full implementation of NAFTA eliminates all customs duties for sweetener trade between Mexico and the United States. Relative costs of production, transportation, and other market factors will determine where sugar crops are grown and processed in the United States and Mexico following elimination of customs duties on sweeteners trade between the two countries. If price supports for raw and refined sugar remain at current levels, U.S. prices could attract additional imports from Mexico causing U.S. market prices for sugar to fall. Depending on the volume of imports from Mexico, sugar prices could drop below the forfeiture level raising the cost of the U.S. sugar program. Alternatively, if the cost of producing sugar in the U.S. is less than in Mexico, full implementation of NAFTA could increase U.S. sugar exports to Mexico, which would raise U.S. prices for sugar and other sweeteners.

41 References

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Enquidanos, Marina, Antonio Soria, Boyan Kavalov, and Peder Jensen, Techno-economic Analysis of Bio-alcohol Production in the EU: A Short Summary for Decision-Makers, Institute for Prospective Technological Studies, Report EUR 20280 EN, May 2002.

42

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43 The Technical Feasibility of a Billon-ton Annual Supply, Oak Ridge National Laboratory, April 2005.

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45 Appendix A - Ethanol yields from sucrose:

The stoichiometric (theoretical) yield of ethanol from sucrose:

= 1076 pounds of ethanol / ton of sucrose = 538 kilograms of ethanol / metric ton of sucrose = 163 gallons of ethanol / ton of sucrose = 680 liters of ethanol / metric ton of sucrose

Maximum obtainable yield:

= 154 gallons of ethanol / ton of sucrose (94.5% of theoretical yield)

Practical ethanol plant operation yield:

= 141 gallons of ethanol / ton of sucrose (86.6% of theoretical yield)

Ethanol production from feedstocks (using 141 gallons per ton of sucrose conversion factor):

(1) Sugarcane = 12.24% raw sugar recovery rate, plus 41.6 pounds of sucrose from cane molasses 1 ton of sugarcane = 235.0 pounds of sucrose from raw sugar and 41.6 lbs of sucrose from molasses = 276.6 pounds (0.1383 tons) sucrose = 19.5 gallons of ethanol or 0.051 tons of sugarcane per gallon of ethanol produced

(2) Sugar beets = 15.58% refined sugar recovery rate, plus 40.0 pounds of sucrose from beet molasses 1 ton of sugar beets = 311.6 pounds of sucrose from refined sugar and 40.0 pounds of sucrose from beet molasses = 351.6 pounds (0.1758 tons) of sucrose = 24.8 gallons of ethanol or 0.040 tons of sugar beets per gallon of ethanol produced

(3) Molasses = 49.2% total sugars as sucrose 1 ton of molasses = 984 pounds (0.492 tons) of sucrose = 69.4 gallons of ethanol or 28.8 pounds of molasses per gallon of ethanol produced or 2.45 gallons of molasses per gallon of ethanol produced (using a conversion of 1.0 gallon of molasses = 11.74 pounds of weight)

(4) Raw sugar = 96.0% totals sugars as sucrose 1 ton of raw sugar = 1920 pounds (0.96 tons) of sucrose = 135.4 gallons of ethanol or 14.77 pounds of raw sugar per gallon of ethanol produced

(5) Refined beet sugar = 100.0% total sugars as sucrose 1 ton of refined sugar = 2000 pounds (1.0 ton) of sucrose = 141.0 gallons of ethanol or 14.18 pounds of refined sugar per gallon of ethanol produced

46

Appendix table 1. Florida sugarcane acreage, yield and production, 1980-2005 Crop Year Total Acreage for Sugarcane yield Sugarcane Recovery Sugar yield acreage sugar per acre production rate per acre (1,000 acres) (tons/acre) (1,000 tons) (%) (tons, raw value)

1980/81 339.2 320.7 31.1 9,985 11.23 3.50 1981/82 348.2 334.4 28.5 9,530 10.10 2.55 1982/83 355.3 341.4 35.4 12,086 10.81 2.76 1983/84 367.9 361.1 31.4 11,330 10.79 5.84 1984/85 387.0 371.9 32.5 12,087 11.68 2.99 1985/86 398.7 383.4 32.9 12,615 11.20 2.92 1986/87 405.0 390.0 33.1 12,916 11.43 3.09 1987/88 417.0 402.0 32.3 12,990 11.68 3.25 1988/89 421.0 404.0 31.6 12,766 12.27 3.04 1989/90 420.0 405.0 31.4 12,717 11.00 3.08 1990/91 434.0 419.0 35.5 14,874 12.14 3.51 1991/92 443.0 428.0 34.9 14,937 12.27 3.62 1992/93 443.0 426.0 33.2 14,143 12.09 3.15 1993/94 444.0 425.0 34.1 14,493 12.22 4.17 1994/95 444.0 423.0 33.6 14,213 12.14 4.08 1995/96 437.0 417.0 34.6 14,428 12.28 4.25 1996/97 438.0 417.0 33.1 13,803 12.17 4.03 1997/98 440.0 421.0 36.9 15,535 12.38 4.57 1998/99 447.0 426.0 40.1 17,083 12.48 5.00 1999/00 460.0 443.0 35.0 15,505 12.68 4.44 2000/01 445.0 436.0 37.5 16,350 12.58 4.72 2001/02 465.0 445.0 35.1 15,620 12.68 4.45 2002/03 461.0 442.0 38.3 16,629 12.58 4.82 2003/04 438.0 419.0 39.3 16,467 13.08 5.14 2004/05 406.0 385.0 34.9 13,437 12.60 4.40 2005/06 401.0 376.0 31.4 11,806 11.59 3..64 Source: Economic Research Service, U.S. Department of Agriculture.

Appendix table 2. Hawaii sugarcane acreage, yield and production, 1980-2005 Crop Year Total Acreage for Sugarcane yield Sugarcane Recovery Sugar yield acreage sugar per acre production rate per acre (1,000 acres) (tons/acre) (1,000 tons) (%) (tons, raw value)

1980/81 104.5 97.4 94.6 9,214 11.10 10.50 1981/82 104.8 97.6 90.5 8,831 11.87 10.74 1982/83 94.7 89.3 98.6 8,808 11.16 11.01 1983/84 99.3 92.8 96.2 8,926 11.70 11.25 1984/85 95.2 89.5 94.5 8,454 12.56 11.87 1985/86 89.4 83.0 95.4 7,916 12.78 12.19 1986/87 90.2 83.6 100.2 8,379 12.45 12.48 1987/88 86.5 79.5 100.8 8,014 11.59 11.69 1988/89 86.1 78.9 96.4 7,606 12.20 11.76 1989/90 81.4 74.7 94.8 7,082 12.21 11.58 1990/91 79.0 72.0 90.8 6,538 12.56 11.40 1991/92 74.0 67.4 86.9 5,857 12.36 10.74 1992/93 67.9 61.7 88.0 5,430 11.95 10.52 1993/94 69.9 64.8 85.0 5,508 12.29 10.44 1994/95 69.3 64.3 81.9 5,266 12.47 10.21 1995/96 53.0 48.5 81.5 3,953 12.42 10.12 1996/97 46.0 42.9 82.6 3,544 12.18 10.06 1997/98 34.2 32.0 91.4 2,925 12.41 11.34 1998/99 32.5 30.3 90.0 2,727 12.98 11.68 1999/00 37.3 35.4 81.7 2,892 12.71 10.38 2000/01 32.0 30.2 78.3 2,365 12.73 9.97 2001/02 20.8 19.3 97.3 1,878 13.11 12.76 2002/03 22.7 21.3 99.0 2,109 12.79 12.66 2003/04 21.3 19.9 102.0 2,030 12.86 13.12 2004/05 23.2 21.8 90.8 1,979 13.04 11.83 2005/06 24.2 21.7 80.7 1,751 14.56 11.75 Source: Economic Research Service, U.S. Department of Agriculture.

47

Appendix table 3. Louisiana sugarcane acreage, yield and production, 1980-2005 Crop Year Total Acreage for Sugarcane yield Sugarcane Recovery Sugar yield acreage sugar per acre production rate per acre (1,000 acres) (tons/acre) (1,000 tons) (%) (tons, raw value)

1980/81 254.0 232.0 23.3 5,414 9.07 2.12 1981/82 265.0 247.0 26.9 6,650 10.71 2.88 1982/83 255.0 234.0 27.6 6,450 10.47 2.88 1983/84 265.0 245.0 23.9 5,850 10.31 2.46 1984/85 230.0 205.0 22.0 4,510 10.02 2.20 1985/86 250.0 226.0 24.0 5,430 9.80 2.35 1986/87 270.0 248.0 27.3 6,770 9.91 2.71 1987/88 285.0 263.0 22.7 5,970 12.24 2.78 1988/89 305.0 279.0 25.3 7,050 11.30 2.86 1989/90 315.0 290.0 25.7 7,440 11.34 2.91 1990/91 245.0 201.0 20.6 4,150 10.55 2.18 1991/92 345.0 321.0 22.1 7,090 10.77 2.38 1992/93 375.0 345.0 23.2 8,010 10.93 2.54 1993/94 390.0 360.0 22.8 8,220 10.86 2.48 1994/95 380.0 352.0 24.4 8,589 11.86 2.89 1995/96 400.0 368.0 25.6 9,421 11.22 2.87 1996/97 370.0 335.0 27.9 9,347 11.28 3.15 1997/98 410.0 380.0 28.2 10,716 11.78 3.32 1998/99 435.0 400.0 29.7 11,880 11.17 3.32 1999/00 465.0 435.0 32.7 14,225 11.83 3.87 2000/01 500.0 465.0 29.7 13,811 11.48 3.41 2001/02 495.0 460.0 29.0 13,340 11.84 3.43 2002/03 495.0 465.0 28.3 13,160 10.39 2.94 2003/04 490.0 450.0 26.2 11,790 11.68 3.06 2004/05 465.0 430.0 23.8 10,234 11.30 2.69 2005/06 455.0 420.0 22.9 9,618 12.94 2.96 Source: Economic Research Service, U.S. Department of Agriculture.

Appendix table 4. Texas sugarcane acreage, yield and production, 1980-2005 Crop Year Total Acreage for Sugarcane yield Sugarcane Recovery Sugar yield acreage sugar per acre production rate per acre (1,000 acres) (tons/acre) (1,000 tons) (%) (tons, raw value)

1980/81 35.0 33.5 28.9 969 9.60 2.78 1981/82 37.4 36.6 31.5 1,154 9.53 3.01 1982/83 36.7 35.7 31.0 1,105 8.87 2.75 1983/84 35.5 34.5 31.7 1,095 5.48 1.74 1984/85 35.1 34.3 27.9 957 8.46 2.36 1985/86 31.9 30.4 30.1 916 8.30 2.50 1986/87 31.0 29.1 29.9 871 10.445 3.13 1987/88 35.1 33.8 31.1 1,052 10.08 3.14 1988/89 33.2 31.7 33.3 1,057 10.12 3.38 1989/90 35.5 33.6 24.7 830 8.31 2.05 1990/91 36.2 34.4 26.5 913 9.64 2.56 1991/92 34.9 33.2 32.4 1,076 10.16 3.29 1992/93 39.3 37.7 34.2 1,290 10.67 3.65 1993/94 44.4 43.5 32.5 1,414 10.35 3.37 1994/95 43.5 42.4 31.5 1,336 10.78 3.40 1995/96 42.3 41.2 32.4 1,335 10.04 3.25 1996/97 34.9 34.6 28.7 993 9.16 2.63 1997/98 29.8 27.3 30.3 827 9.62 2.91 1998/99 32.6 32.0 32.9 1,053 10.08 3.32 1999/00 31.0 28.0 34.1 955 11.01 3.75 2000/01 46.3 45.5 38.8 1,765 11.68 4.53 2001/02 47.0 46.0 42.1 1,937 8.97 3.78 2002/03 44.5 43.6 39.1 1,705 11.20 4.38 2003/04 43.0 41.7 39.7 1,655 10.58 4.20 2004/05 44.0 42.7 37.3 1,593 9.92 3.70 2005/06 42.4 40.5 38.3 1,551 11.61 4.44 Source: Economic Research Service, U.S. Department of Agriculture.

48

Appendix table 5. Great Lakes sugar beet acreage, yield and production, 1991-2005 Crop Year Planted Harvested Sugar beet Sugar beet acreage acreage yield per acre production (1,000 acres) (1,000 acres) (tons/acre) (1,000 tons)

1991 191.3 184.5 15.6 2,869 1992 200.2 195.5 17.5 3,426 1993 208.1 204.5 16.6 3,391 1994 212.0 203.0 16.2 3,293 1995 206.3 203.3 15.7 3,200 1996 157.9 134.6 15.2 2,049 1997 163.9 160.9 19.0 3,057 1998 178.3 174.1 16.0 2,787 1999 195.8 191.7 18.6 3,567 2000 190.2 166.8 20.5 3,420 2001 180.8 166.6 19.4 3,232 2002 180.9 178.8 18.1 3,241 2003 181.0 179.9 19.2 3,446 2004 166.9 164.7 21.1 3,476 2005 154.0 152.0 21.3 3,238 Great Lakes region includes Michigan and Ohio. Source: Economic Research Service, U.S. Department of Agriculture.

Appendix table 6. Upper Midwest sugar beet acreage, yield and production, 1991-2005 Crop Year Planted Harvested Sugar beet Sugar beet acreage Acreage yield per acre Production (1,000 acres) (1,000 acres) (tons/acre) (1,000 tons)

1991 564.0 556.9 17.5 9,739 1992 567.5 564.7 18.1 10,233 1993 583.8 569.9 14.8 8,456 1994 620.8 612.5 20.8 12,739 1995 634.0 624.2 18.2 11,363 1996 667.6 663.3 18.4 12,184 1997 684.4 673.5 18.5 12,456 1998 723.0 700.6 21.5 15,096 1999 731.6 717.0 20.3 14,585 2000 748.0 662.0 21.7 14,372 2001 729.0 663.0 18.2 12,086 2002 770.0 734.0 18.6 13,653 2003 751.0 742.0 20.5 15,234 2004 742.0 716.0 20.5 14,669 2005 746.0 703.0 19.9 13,977 Upper Midwest region includes Minnesota and North Dakota. Source: Economic Research Service, U.S. Department of Agriculture.

49

Appendix table 7. Great Plains sugar beet acreage, yield and production, 1991-2005 Crop Year Planted Harvested Sugar beet Sugar beet Acreage Acreage yield per acre production (1,000 acres) (1,000 acres) (tons/acre) (1,000 tons)

1991 289.9 271.5 21.7 5,894 1992 292.8 282.2 20.9 5,888 1993 283.3 277.3 20.4 5,658 1994 269.1 257.1 20.8 5,357 1995 257.6 249.7 18.8 4,694 1996 241.5 230.1 19.9 4,588 1997 276.1 262.5 19.4 5,104 1998 236.3 220.5 21.4 4,729 1999 264.6 253.5 21.3 5,390 2000 271.4 219.7 21.8 4,793 2001 196.0 173.3 21.2 3,671 2002 198.9 173.4 19.1 3,309 2003 160.6 155.1 23.0 3,565 2004 175.9 168.7 22.7 3,831 2005 174.9 165.4 22.4 3,701 Great Plains region includes Colorado, Montana, Nebraska, New Mexico, Texas and Wyoming. Source: Economic Research Service, U.S. Department of Agriculture.

Appendix table 8. Far West sugar beet acreage, yield and production, 1991-2005 Crop Year Planted Harvested Sugar beet Sugar beet Acreage Acreage yield per acre production (1,000 acres) (1,000 acres) (tons/acre) (1,000 tons)

1991 379.9 371.6 25.9 9,624 1992 374.4 367.3 25.9 9,524 1993 360.0 355.2 24.3 8,641 1994 361.7 358.4 27.9 10,012 1995 332.4 328.8 25.3 8,324 1996 301.4 295.3 26.6 7,859 1997 334.9 331.4 28.0 9,269 1998 360.2 355.5 27.8 9,887 1999 368.6 365.1 27.1 9,878 2000 354.6 324.5 30.7 9,956 2001 264.7 240.5 28.2 6,775 2002 277.5 274.5 27.3 7,504 2003 272.8 270.9 31.2 8,465 2004 260.8 257.3 31.3 8,045 2005 224.9 222.5 29.8 6,621 Far West region includes California, Idaho, Oregon and Washington. Source: Economic Research Service, U.S. Department of Agriculture.

50

Appendix table 9. Estimated sugarcane processing costs per pound of raw sugar equivalent for ethanol production, U.S. and Florida, 2003-05 1/ U.S. Florida Item 2003 2004 2005 2003 2004 2005 (cents per pound of raw sugar equivalent) Variable cash expenses: Cane transportation 1.185 1.288 1.328 1.215 1.334 1.522 Processing: 2.023 2.195 2.281 1.833 1.973 2.212 Labor 1.161 1.229 1.225 1.247 1.327 1.456 Fuel 0.154 0.181 0.219 0.066 0.075 0.098 Chemicals 0.121 0.134 0.139 0.077 0.084 0.096 Electricity 0.100 0.119 0.145 0.029 0.034 0.044 Materials and supplies 0.486 0.533 0.553 0.413 0.454 0.518 Repairs and maintenance 1.456 1.608 1.675 1.135 1.246 1.422 Total variable expenses 4.664 5.092 5.284 4.183 4.555 5.156

General and administrative: Labor 0.366 0.390 0.389 0.325 0.346 0.379 Nonlabor 0.566 0.612 0.629 0.659 0.724 0.826 Total 0.932 1.001 1.018 0.984 1.070 1.205

Total processing costs 5.596 6.093 6.302 5.167 5.625 6.361

Credits: Bagasse 0.037 0.034 0.033 0.032 0.029 0.026 Other 0.080 0.093 0.090 0.043 0.043 0.043 Total 0.118 0.127 0.123 0.075 0.072 0.069

Total processing cost less credits 5.478 5.966 6.179 5.092 5.553 6.292

1/ Variable cash, general and administrative expenses less credits with adjusted energy expenses for ethanol production.

Appendix table 10. Estimated sugarcane processing costs per pound of raw sugar equivalent for ethanol production, Hawaii and Louisiana/Texas, 2003-05 1/ Hawaii. Louisiana/Texas Item 2003 2004 2005 2003 2004 2005 (cents per pound of raw sugar equivalent) Variable cash expenses: Cane transportation 0.704 0.707 0.809 1.225 1.346 1.226 Processing: 3.192 3.181 3.701 2.089 2.281 2.102 Labor 1.807 1.758 1.937 0.934 0.994 0.871 Fuel 0.416 0.435 0.572 0.233 0.266 0.278 Chemicals 0.152 0.152 0.175 0.176 0.194 0.176 Electricity 0.351 0.367 0.483 0.157 0.179 0.187 Materials and supplies 0.466 0.468 0.536 0.590 0.648 0.590 Repairs and maintenance 2.168 2.178 2.494 1.782 1.957 1.782 Total variable expenses 6.063 6.066 7.055 5.096 5.584 5.110

General and administrative: Labor 0.519 0.505 0.556 0.396 0.422 0.369 Nonlabor 0.339 0.340 0.390 0.476 0.523 0.476 Total 0.857 0.845 0.946 0.872 0.945 0.846

Total processing costs 6.920 6.911 8.001 5.968 6.529 5.956

Credits: Bagasse 0.000 0.000 0.000 0.051 0.047 0.046 Other 0.866 0.866 0.866 0.000 0.000 0.000 Total 0.866 0.866 0.866 0.051 0.047 0.046

Total processing cost less credits 6.054 6.045 7.085 5.917 6.482 5.910

1/ Variable cash, general and administrative expenses less credits with adjusted energy expenses for ethanol production.

51

Appendix table 11. Estimated sugar beet processing costs per pound of refined sugar equivalent for ethanol production, U.S., 2003-05 1/ U.S. Item 2003 2004 2005 (cents per pound of refined sugar equivalent)

Variable cash expenses: Beet acquisition 1.312 1.162 1.157 Processing: Labor 1.350 1.374 1.333 Fuel 0.776 0.849 0.983 Chemicals 0.261 0.274 0.277 Electricity 0.154 0.168 0.195 Materials and supplies 0.356 0.374 0.377 Repairs and maintenance 1.098 1.154 1.164 Total variable expenses 5.308 5.356 5.486

General and administrative: Labor 0.252 0.257 0.249 Nonlabor 0.281 0.296 0.298 Total 0.534 0.553 0.548

Pulp drying and marketing 1.166 1.226 1.236

Total processing costs 7.008 7.134 7.270

Credits: Dried pulp 1.973 1.977 1.833 Other 0.156 0.156 0.156 Total 2.129 2.133 1.990

Total processing cost less credits 4.879 5.001 5.281

1/ Variable cash, general and administrative expenses less credits with adjusted energy expenses for ethanol production.

Appendix table 12. Estimated sugar beet processing costs per pound of refined sugar equivalent for ethanol production, East and West Regions, 2003-05 1/ East Region 2/ West Region 2/ Item 2003 2004 2005 2003 2004 2005 (cents per pound of refined sugar equivalent)

Variable cash expenses: Beet acquisition 1.139 1.009 1.004 1.541 1.365 1.358 Processing: Labor 1.294 1.316 1.278 1.423 1.449 1.406 Fuel 0.792 0.867 1.003 0.755 0.826 0.956 Chemicals 0.282 0.296 0.299 0.230 0.241 0.244 Electricity 0.224 0.245 0.283 0.057 0.063 0.072 Materials and supplies 0.473 0.497 0.501 0.199 0.209 0.211 Repairs and maintenance 1.301 1.367 1.379 0.823 0.865 0.872 Total variable expenses 5.504 5.597 5.747 5.028 5.017 5.120

General and administrative: Labor 0.257 0.262 0.254 0.244 0.248 0.241 Nonlabor 0.161 0.169 0.171 0.442 0.465 0.469 Total 0.418 0.431 0.425 0.686 0.713 0.710

Pulp drying and marketing 1.117 1.173 1.184 1.231 1.294 1.305

Total processing costs 7.039 7.201 7.356 6.945 7.023 7.134

Credits: Dried pulp 2.099 2.103 1.951 1.793 1.797 1.667 Other 0.166 0.166 0.166 0.143 0.143 0.143 Total 2.265 2.269 2.117 1.936 1.940 1.810

Total processing cost less credits 4.774 4.932 5.239 5.009 5.083 5.324

1/ Variable cash, general and administrative expenses less credits with adjusted energy expenses for ethanol production. 2/ East region includes Great Lakes and Red River Valley, West region includes Great Plains and Northwest.

52

Appendix table 13. Sugarcane production cash costs, Florida, 1992-96 with indexed values for 2003-2005 Item 1992 1993 1994 1995 1996 2003 2004 2005 (dollars per harvested acre) Cash expenses: Seed 28.32 27.22 27.77 27.95 27.95 37.43 38.41 40.84 Fertilizer 54.66 51.48 50.97 61.33 57.99 57.53 65.42 75.16 Chemicals 52.93 55.17 57.67 59.10 61.15 62.18 61.67 61.67 Custom operations 89.33 96.16 99.18 106.65 104.81 111.13 112.03 115.65 Fuel and lubrication 21.21 20.81 19.78 21.67 23.79 28.71 33.43 45.94 Repairs 71.39 75.42 76.27 80.12 80.84 85.72 86.42 89.21 Hired labor 373.39 359.80 382.63 406.54 396.76 532.41 545.97 559.53 Purchases irrigation water 6.21 6.34 6.55 6.70 7.07 7.75 8.12 8.67 Miscellaneous 0.51 0.52 0.53 0.56 0.58 0.64 0.67 0.71 Hauling allowance (-) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total variable cash expenses 697.98 692.92 721.35 770.63 760.95 923.50 952.13 997.37

General farm overhead 87.24 106.01 111.85 114.79 107.45 117.72 123.33 131.74 Taxes and insurance 31.66 36.11 34.47 59.27 59.93 68.49 69.56 67.42 Interest 8.33 8.75 8.64 9.61 9.49 9.13 9.22 9.75 Total fixed cash expenses 127.23 150.87 154.96 183.67 176.86 195.34 202.11 208.91

Total cash expenses 825.21 843.79 876.32 954.31 937.81 1,118.84 1,154.23 1,206.29

Yield (net tons/harvested acre) 33.20 34.10 33.60 34.60 34.00 39.30 35.20 32.30 Source: 1992-96 data from Economic Research Service, USDA

Appendix table 14. Sugarcane production economic costs and returns, Florida, 1992-96 with indexed values for 2003-2005 Item 1992 1993 1994 1995 1996 2003 2204 2005 (dollars per harvested acre) Economic (full ownership) costs: Total variable cash expenses 697.98 692.92 721.35 770.63 760.95 923.50 952.13 997.37 General farm overhead 87.24 106.01 111.85 114.79 107.45 117.72 123.33 131.74 Taxes and insurance 31.66 36.11 34.47 59.27 59.93 68.49 69.56 67.42 Capital replacement 44.00 45.13 47.93 50.77 52.88 63.88 68.53 72.34 Operating capital 12.46 10.81 16.81 21.54 19.37 21.22 22.23 23.75 Other nonland capital 10.14 10.37 11.06 12.01 11.86 12.99 13.61 14.54 Land 189.93 176.25 126.05 180.34 183.54 172.07 172.07 179.24 Unpaid labor 1.28 1.23 1.31 1.39 1.36 1.82 1.87 1.92 Total economic costs 1,074.69 1,078.83 1,071.44 1,210.75 1,197.34 1,381.70 1,423.34 1,488.32

Yield (net tons/harvested acre) 33.20 34.10 33.60 34.60 34.00 39.30 35.20 32.30 Source: 1992-96 data from Economic Research Service, USDA

53

Appendix table 15. Sugarcane production cash costs, Hawaii, 1992-96 with indexed values for 2003-2005 Item 1992 1993 1994 1995 1996 2003 2004 2005 (dollars per harvested acre) Cash expenses: Seed n/a n/a n/a n/a n/a n/a n/a n/a Fertilizer 237.84 230.04 250.84 285.41 294.92 292.56 332.67 382.22 Chemicals 134.36 140.06 146.38 150.01 155.23 157.84 156.54 156.54 Custom operations 58.68 59.40 59.91 62.26 62.57 66.34 66.88 69.04 Fuel and lubrication 91.86 84.65 78.68 83.30 93.51 112.85 131.39 180.57 Repairs 420.72 417.97 413.37 419.62 432.97 459.10 462.83 477.76 Hired labor 1,274.54 1,327.82 1,385.31 1,504.49 1,378.30 1,849.51 1,896.63 1,943.75 Purchases irrigation water n/a n/a n/a n/a n/a n/a n/a n/a Miscellaneous 95.85 97.73 99.71 104.39 109.14 119.58 125.27 133.81 Hauling allowance (-) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total variable expenses 2,313.85 2,357.67 2,434.20 2,609.48 2,526.63 3,057.78 3,172.21 3,343.68

General farm overhead 257.69 313.12 330.38 339.08 317.38 347.73 364.29 389.13 Taxes and insurance 42.16 43.26 51.58 49.50 48.28 55.18 56.04 54.31 Interest n/a n/a n/a n/a n/a n/a n/a n/a Total fixed cash expenses 299.85 356.38 381.97 388.58 365.65 402.91 420.33 443.44

Total cash expenses 2,613.70 2,714.05 2,816.17 2,998.06 2,892.28 3,460.69 3,592.54 3,787.13

Yield (net tons/harvested acre) 88.00 85.00 81.90 81.50 81.90 97.70 87.30 86.90 Source: 1992-96 data from Economic Research Service, USDA

Appendix table 16. Sugarcane production economic costs, Hawaii, 1992-96 with indexed values for 2003-2005 Item 1992 1993 1994 1995 1996 2003 2004 2005 (dollars per harvested acre) Economic (full ownership) costs: Total variable cash expenses 2,313.85 2,357.67 2,434.20 2,609.48 2,526.63 3,057.78 3,172.21 3,343.68 General farm overhead 257.69 313.12 330.38 339.08 317.38 347.73 364.29 389.13 Taxes and insurance 42.16 43.26 51.58 49.50 48.28 55.18 56.04 54.31 Capital replacement 159.79 163.91 174.05 184.37 192.06 232.01 248.91 262.74 Operating capital 40.96 36.78 56.72 72.94 64.30 70.45 73.81 78.84 Other nonland capital 90.40 92.48 98.62 107.10 105.74 115.85 121.37 129.65 Land 211.15 203.03 219.27 235.51 241.60 226.50 226.50 235.94 Unpaid labor n/a n/a n/a n/a n/a n/a n/a n/a Total economic costs 3,116.00 3,210.25 3,364.82 3,597.98 3,495.98 4,105.50 4,263.13 4,494.29

Yield (net tons/harvested acre) 88.00 85.00 81.90 81.50 81.90 97.70 87.30 86.90 Source: 1992-96 data from Economic Research Service, USDA

54

Appendix table 17. Sugarcane production cash costs, Louisiana/Texas, 1992-96 with indexed values for 2003-2005 Item 1992 1993 1994 1995 1996 2003 2004 2005 (dollars per harvested acre) Cash expenses: Seed 50.33 50.78 50.04 52.30 54.63 73.16 75.06 79.81 Fertilizer 4.82 42.96 46.68 55.83 53.82 53.39 60.71 69.75 Chemicals 56.86 59.19 61.86 63.42 65.66 66.76 66.21 66.21 Custom operations 9.36 9.52 10.60 11.64 12.20 12.93 13.04 13.46 Fuel and lubrication 23.88 22.12 22.70 25.440 29.73 35.88 41.77 57.41 Repairs 62.14 61.43 67.40 72.59 79.00 83.77 84.45 87.17 Hired labor 113.90 120.85 118.90 119.78 126.81 170.16 174.50 178.83 Purchases irrigation water 3.95 5.13 5.28 5.07 4.92 5.39 5.65 6.03 Miscellaneous 3.18 3.18 3.24 3.41 3.59 3.94 4.13 4.41 Hauling allowance (-) -18.16 -16.89 -16.30 -17.47 -19.69 -19.90 -17.75 -17.25 Total variable cash expenses 349.26 358.27 370.42 391.98 410.67 485.49 507.76 545.84

General farm overhead 23.48 29.92 31.55 31.94 29.41 32.22 33.75 36.05 Taxes and insurance 30.77 34.90 38.53 37.53 40.51 46.29 47.01 45.57 Interest 16.13 17.24 17.01 18.83 18.48 17.78 17.95 19.00 Total fixed cash expenses 70.38 82.06 87.09 88.31 88.39 96.29 98.72 100.62

Total cash expenses 419.64 440.33 457.51 480.29 499.06 581.77 606.48 646.46

Yield (net tons/harvested acre) 24.13 23.85 21.79 26.28 26.96 27.82 25.56 24.83 Source: 1992-96 data from Economic Research Service, USDA

Appendix table 18. Sugarcane production economic costs, Louisiana/Texas, 1992-96 with indexed values for 2003-2005 Item 1992 1993 1994 1995 1996 2003 2004 2005 (dollars per harvested acre) Economic (full ownership) costs: 349.26 358.27 370.42 391.98 410.67 485.49 507.76 545.84 Total variable expenses 23.48 29.92 31.55 31.94 29.41 32.22 33.75 36.05 General farm overhead 30.77 34.90 38.53 37.53 40.51 46.29 47.01 45.57 Taxes and insurance 80.52 80.82 85.85 91.53 96.07 116.05 124.51 131.42 Capital replacement 6.23 5.59 8.63 10.96 10.45 11.45 11.99 12.81 Operating capital 35.22 35.25 37.60 41.10 40.89 44.80 46.93 50.13 Other nonland capital 105.23 99.27 109.69 119.72 124.27 116.50 116.50 121.36 Land 30.53 32.27 31.68 31.97 33.96 45.57 46.73 47.89 Unpaid labor 661.24 676.29 713.95 756.73 786.22 898.37 935.19 991.08 Total economic costs

Yield (net tons/harvested acre) 24.13 23.85 21.79 26.28 26.96 27.82 25.56 24.83 Source: 1992-96 data from Economic Research Service, USDA

55

Appendix table 19. Sugarcane processing costs per pound of 96 degree raw sugar, Florida, 1992-96 Item 1992 1993 1994 1995 1996 (cents per pound of raw sugar) Variable cash expenses: Cane transportation 1.164 1.159 1.198 1.252 1.265 Processing: 1.649 1.648 1.662 1.673 1.750 Labor 1.027 1.021 1.034 1.038 1.076 Fuel 0.096 0.095 0.092 0.092 0.113 Chemicals 0.071 0.072 0.075 0.080 0.080 Electricity 0.049 0.051 0.049 0.049 0.051 Materials and supplies 0.406 0.409 0.412 0.415 0.430 Repairs and maintenance 1.099 1.094 1.131 1.177 1.181 Labor benefits 0.455 0.452 0.458 0.460 0.477 Marketing 0.938 0.950 0.963 0.974 1.010 Total variable cash expenses 5.305 5.303 5.412 5.536 5.683

Fixed cash expenses: Depreciation 0.398 0.396 0.408 0.403 0.385 Taxes and insurance 0.111 0.111 0.113 0.115 0.121 Interest 0.148 0.129 0.193 0.229 0.210 Total fixed cash expenses 0.657 0.636 0.714 0.747 0.716

General and administrative: Labor 0.268 0.266 0.270 0.270 0.280 Nonlabor 0.609 0.627 0.646 0.660 0.686 Total 0.877 0.893 0.915 0.931 0.967

Total processing costs 6.839 6.832 7.041 7.214 7.366

Credits: Molasses 0.561 0.514 0.616 0.655 0.701 Bagasse 0.026 0.027 0.026 0.027 0.028 Other 0.038 0.039 0.040 0.043 0.043 Total 0.625 0.580 0.682 0.725 0.772 Recovery per net ton of cane 241.8 242.7 242.7 245.4 243.2 (lbs of raw sugar) Source: Economic Research Service, USDA.

Appendix table 20. Cane sugar production and processing costs per pound of raw sugar, Florida, 1992-96 Item 1992 1993 1994 1995 1996 (cents per pound of raw sugar) Production costs: Variable cash expenses 8.695 8.373 8.846 9.076 9.203 Fixed and other noncash expenses 4.693 4.663 4.293 5.183 5.278 Total production costs 13.387 13.036 13.139 14.259 14.480

Processing costs: Variable cash expenses 5.305 5.303 5.412 5.536 5.683 Fixed cash expenses 0.657 0.636 0.714 0.747 0.716 General and administrative expenses 0.877 0.893 0.915 0.931 0.967 Total processing costs 6.839 6.832 7.041 7.214 7.366

Credits: Molasses 0.561 0.514 0.616 0.655 0.701 Bagasse 0.026 0.027 0.026 0.027 0.028 Other 0.038 0.039 0.040 0.043 0.043 Total 0.625 0.580 0.682 0.725 0.772

Total processing costs less credits 6.214 6.252 6.359 6.489 6.594

Total production and processing costs 19.601 19.288 19.498 20.748 21.074

Total variable costs less credits 13.375 13.096 13.576 13.887 14.114

Source: Economic Research Service, USDA.

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Appendix table 21. Sugarcane processing costs per pound of 96 degree raw sugar, Hawaii, 1992-96 Item 1992 1993 1994 1995 1996 (cents per pound of raw sugar) Variable cash expenses: Cane transportation 0.682 0.653 0.665 0.700 0.718 Processing: 3.226 3.116 3.124 3.244 3.458 Labor 1.520 1.453 1.467 1.526 1.529 Fuel 0.602 0.576 0.560 0.565 0.705 Chemicals 0.139 0.137 0.141 0.153 0.155 Electricity 0.512 0.509 0.512 0.545 0.595 Materials and supplies 0.453 0.441 0.444 0.455 0.475 Repairs and maintenance 2.109 2.024 2.087 2.223 2.213 Labor benefits 1.250 1.195 1.207 1.255 1.257 Marketing 2.273 2.221 2.249 2.317 2.415 Total variable cash expenses 9.540 9.209 9.332 9.739 10.062

Fixed cash expenses: Depreciation 0.981 0.941 0.972 0.975 0.940 Taxes and insurance 0.157 0.156 0.159 0.163 0.174 Interest 0.000 0.000 0.000 0.000 0.000 Total fixed cash expenses 1.138 1.097 1.130 1.138 1.114

General and administrative: Labor 0.436 0.417 0.421 0.438 0.439 Nonlabor 0.310 0.308 0.317 0.330 0.346 Total 0.746 0.725 0.738 0.768 0.785

Total processing costs 11.424 11.031 11.200 11.645 11.960

Credits: Molasses 0.614 0.537 0.628 0.502 0.454 Bagasse 0.000 0.000 0.000 0.000 0.000 Other 1.292 1.284 1.265 1.030 0.866 Total 1.906 1.821 1.893 1.532 1.320

Recovery per net ton of cane 240.1 249.5 249.5 248.0 243.8 (lbs of raw sugar) Source: Economic Research Service, USDA.

Appendix table 22. Cane sugar production and processing costs per pound of raw sugar, Hawaii, 1992-96 Item 1992 1993 1994 1995 1996 (cents per pound of raw sugar) Production costs: Variable cash expenses 10.951 11.117 11.912 12.911 12.654 Fixed and other noncash expenses 3.796 4.020 4.554 4.891 4.855 Total production costs 14.748 15.137 16.467 17.801 17.509

Processing costs: Variable cash expenses 9.540 9.209 9.332 9.739 10.062 Fixed cash expenses 1.138 1.097 1.130 1.138 1.114 General and adm.expenses 0.746 0.725 0.738 0.768 0.785 Total processing costs 11.424 11.031 11.200 11.645 11.960

Credits: Molasses 0.614 0.537 0.628 0.502 0.454 Bagasse 0.000 0.000 0.000 0.000 0.000 Other 1.292 1.284 1.265 1.030 0.866 Total 1.906 1.821 1.893 1.532 1.320

Total processing costs less credits 9.518 9.210 9.307 10.113 10.639

Total production & processing costs 24.266 24.347 25.774 27.914 28.148

Total variable costs less credits 18.585 18.505 19.351 21.117 21.395

Source: Economic Research Service, USDA.

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Appendix table 23. Sugarcane processing costs per pound of 96 degree raw sugar, Louisiana/Texas, 1992-96 Item 1992 1993 1994 1995 1996 (cents per pound of raw sugar) Variable cash expenses: Cane transportation 1.147 1.060 1.189 1.254 1.246 Processing: 2.075 1.929 2.104 2.104 2.224 Labor 0.743 0.685 0.765 0.776 0.788 Fuel 0.334 0.307 0.321 0.318 0.393 Chemicals 0.161 0.151 0.167 0.178 0.179 Electricity 0.268 0.253 0.274 0.252 0.264 Materials and supplies 0.569 0.533 0.576 0.579 0.600 Repairs and maintenance 1.689 1.554 1.744 1.823 1.812 Labor benefits 0.540 0.498 0.556 0.565 0.573 Marketing 0.610 0.571 0.625 0.631 0.651 Total variable expenses 6.061 5.612 6.217 6.377 6.506

Fixed cash expenses: Depreciation 0.648 0.598 0.663 0.653 0.624 Taxes and insurance 0.296 0.276 0.312 0.313 0.324 Interest 0.117 0.095 0.152 0.180 0.166 Total fixed cash expenses 1.061 0.969 1.127 1.146 1.113

General and administrative: Labor 0.315 0.291 0.325 0.329 0.334 Nonlabor 0.432 0.412 0.457 0.466 0.484 Total 0.747 0.703 0.781 0.795 0.818

Total processing costs 7.869 7.284 8.126 8.319 8.438

Credits: Molasses 0.688 0.590 0.799 0.904 0.906 Bagasse 0.044 0.043 0.048 0.052 0.050 Other 0.000 0.000 0.000 0.000 0.000 Total 0.732 0.633 0.846 0.956 0.955

Recovery per net ton of cane 217.4 235.2 218.9 221.8 219.9 (lbs of raw sugar) Source: Economic Research Service, USDA.

Appendix table 24. Cane sugar production and processing costs per pound of raw sugar, Louisiana/Texas, 1992-96 Item 1992 1993 1994 1995 1996 (cents per pound of raw sugar) Production costs: Variable cash expenses 6.658 6.387 7.764 6.725 6.927 Fixed and other noncash expenses 5.947 5.669 7.201 6.258 6.335 Total production costs 12.605 12.056 14.965 12.982 13.262

Processing costs: Variable cash expenses 6.061 5.612 6.217 6.377 6.506 Fixed cash expenses 1.061 0.969 1.127 1.146 1.113 General and adm. expenses 0.747 0.703 0.781 0.795 0.818 Total processing costs 7.869 7.284 8.126 8.319 8.438

Credits: Molasses 0.688 0.590 0.799 0.904 0.906 Bagasse 0.044 0.043 0.048 0.052 0.050 Other 0.000 0.000 0.000 0.000 0.000 Total 0.732 0.633 0.846 0.956 0.955

Total processing costs less credits 7.137 6.651 7.280 7.363 7.483

Total production & processing costs 19.742 18.707 22.244 20.345 20.745

Total variable costs less credits 11.987 11.366 13.135 12.146 12.478

Source: Economic Research Service, USDA.

58

Appendix table 25. Sugarcane estimated processing costs per pound of 96 degree raw sugar, Florida, 2003-05 Item 2003 2004 2005 (cents per pound of raw sugar) Variable cash expenses: Cane transportation 1.215 1.334 1.522 Processing: 1.928 2.082 2.354 Labor 1.247 1.327 1.456 Fuel 0.131 0.150 0.197 Chemicals 0.077 0.084 0.096 Electricity 0.059 0.067 0.088 Materials and supplies 0.413 0.454 0.518 Repairs and maintenance 1.135 1.246 1.422 Labor benefits 0.578 0.659 0.743 Marketing 0.970 1.065 1.215 Total variable cash expenses 5.826 6.388 7.256

Fixed cash expenses: Depreciation 0.361 0.380 0.421 Taxes and insurance 0.116 0.127 0.145 Interest 0.202 0.222 0.253 Total fixed cash expenses 0.679 0.729 0.819

General and administrative: Labor 0.325 0.346 0.379 Nonlabor 0.659 0.724 0.826 Total .0984 1.070 1.205

Total processing costs 7.490 8.187 9.280

Credits: Molasses 0.524 0.534 0.578 Bagasse 0.032 0.029 0.026 Other 0.043 0.043 0.043 Total 0.598 0.606 0.647

Recovery per net ton of cane 261.6 252.0 233.0 (lbs of raw sugar)

Appendix table 26. Cane sugar estimated production and processing costs per pound of raw sugar, Florida, 2003-05 Item 2003 2004 2005 (cents per pound of raw sugar) Production costs: Variable cash expenses 8.983 10.734 13.253 Fixed and other noncash expenses 4.457 5.312 6.523 Total production costs 13.440 16.046 19.776

Processing costs: Variable cash expenses 5.826 6.388 7.256 Fixed cash expenses 0.679 0.729 0.819 General and administrative expenses 0.984 1.070 1.205 Total processing costs 7.490 8.187 9.280

Credits: Molasses 0.524 0.534 0.578 Bagasse 0.032 0.029 0.026 Other 0.043 0.043 0.043 Total 0.598 0.606 0.647

Total processing costs less credits 6.891 7.581 8.633

Total production and processing costs 20.331 23.627 28.409

Total variable costs less credits 14.210 16.515 19.861

59

Appendix table 27. Sugarcane estimated processing costs per pound of 96 degree raw sugar, Hawaii, 2003-05 Item 2003 2004 2005 (cents per pound of raw sugar) Variable cash expenses: Cane transportation 0.704 0.707 0.809 Processing: 3.959 3.983 4.756 Labor 1.807 1.758 1.937 Fuel 0.832 0.870 1.144 Chemicals 0.152 0.152 0.175 Electricity 0.702 0.734 0.965 Materials and supplies 0.466 0.468 0.536 Repairs and maintenance 2.168 2.178 2.494 Labor benefits 1.554 1.622 1.836 Marketing 2.366 2.377 2.722 Total variable cash expenses 10.751 10.868 12.617

Fixed cash expenses: Depreciation 0.899 0.865 0.961 Taxes and insurance 0.170 0.171 0.196 Interest 0.000 0.000 0.000 Total fixed cash expenses 1.069 1.036 1.157

General and administrative: Labor 0.519 0.505 0.556 Nonlabor 0.339 0.340 0.390 Total 0.857 0.845 0.946

Total processing costs 12.677 12.749 14.720

Credits: Molasses 0.486 0.462 0.501 Bagasse 0.000 0.000 0.000 Other 0.866 0.866 0.866 Total 1.352 1.328 1.367

Recovery per net ton of cane 257.2 270.8 249.4 (lbs of raw sugar)

Appendix table 28. Cane sugar estimated production and processing costs per pound of raw sugar, Hawaii, 2003-05 Item 2003 2004 2005 (cents per pound of raw sugar) Production costs: Variable cash expenses 12.169 13.418 15.428 Fixed and other noncash expenses 4.169 4.615 5.309 Total production costs 16.338 18.033 20.737

Processing costs: Variable cash expenses 10.751 10.868 12.617 Fixed cash expenses 1.069 1.036 1.157 General and adm.expenses 0.857 0.845 0.946 Total processing costs 12.677 12.749 14.720

Credits: Molasses 0.486 0.462 0.501 Bagasse 0.000 0.000 0.000 Other 0.866 0.866 0.866 Total 1.352 1.328 1.367

Total processing costs less credits 11.325 11.421 13.353

Total production & processing costs 27.663 29.454 34.090

Total variable costs less credits 21.567 22.958 26.678

60

Appendix table 29. Sugarcane estimated processing costs per pound of 96 degree raw sugar, Louisiana/Texas, 2003-05 Item 2003 2004 2005 (cents per pound of raw sugar) Variable cash expenses: Cane transportation 1.225 1.346 1.266 Processing: 2.479 2.726 2.567 Labor 0.934 0.994 0.871 Fuel 0.466 0.532 0.556 Chemicals 0.176 0.194 0.176 Electricity 0.313 0.358 0.374 Materials and supplies 0.590 0.648 0.590 Repairs and maintenance 1.782 1.957 1.782 Labor benefits 0.711 0.811 0.730 Marketing 0.640 0.704 0.641 Total variable expenses 6.836 7.544 6.946

Fixed cash expenses: Depreciation 0.598 0.630 0.557 Taxes and insurance 0.318 0.350 0.319 Interest 0.163 0.179 0.163 Total fixed cash expenses 1.080 1.159 1.038

General and administrative: Labor 0.396 0.422 0.369 Nonlabor 0.476 0.523 0.476 Total 0.872 0.945 0.846

Total processing costs 8.788 9.647 8.830

Credits: Molasses 0.663 0.684 0.591 Bagasse 0.051 0.047 0.046 Other 0.000 0.000 0.000 Total 0.715 0.731 0.637

Recovery per net ton of cane 231.2 222.6 257.8 (lbs of raw sugar)

Appendix table 30. Cane sugar estimated production and processing costs per pound of raw sugar, Louisiana/Texas, 2003-05 Item 2003 2004 2005 (cents per pound of raw sugar) Production costs: Variable cash expenses 7.548 8.924 8.527 Fixed and other noncash expenses 6.419 7.513 6.956 Total production costs 13.967 16.437 15.483

Processing costs: Variable cash expenses 6.836 7.544 6.946 Fixed cash expenses 1.080 1.159 1.038 General and adm. expenses 0.872 0.945 0.846 Total processing costs 8.788 9.647 8.830

Credits: Molasses 0.663 0.684 0.591 Bagasse 0.051 0.047 0.046 Other 0.000 0.000 0.000 Total 0.715 0.731 0.637

Total processing costs less credits 8.074 8.916 8.193

Total production & processing costs 22.041 25.352 23.676

Total variable costs less credits 13.670 15.736 14.836

61

Appendix table 31. Sugar beet production cash costs, United States, 2003-04 with indexed values for 2005 Item 2003 2004 2005 (dollars per planted acre) Cash expenses: Seed 46.46 50.13 53.30 Fertilizer 57.45 59.23 68.05 Chemicals 96.39 94.73 94.73 Custom operations 34.54 34.89 36.02 Fuel and lubrication 50.53 55.94 76.87 Repairs 47.38 48.25 49.81 Purchases irrigation water 5.06 5.39 5.76 Freight and dirt hauling charges 16.07 16.53 17.66 Miscellaneous 17.48 18.34 19.59 Hauling allowance (-) 7.29 7.46 7.97 Interest on operating capital 1.93 2.97 3.14 Total operating cash expenses 366.00 378.94 416.96

Allocated overhead expenses: Hired labor 63.53 66.63 68.29 Opportunity cost of unpaid labor 84.51 88.74 90.94 Capital recovery of machinery 154.50 155.79 164.45 Opportunity cost of land 123.68 124.94 130.15 Taxes and insurance 15.60 15.91 15.42 General farm overhead 35.92 36.68 39.18 Coop share 29.39 30.07 29.73 Total allocated overhead expenses 507.13 518.76 538.15

Total production expenses 873.13 897.70 955.11

Yield (net tons/planted acre) 22.20 22.00 22.30 Source: Economic Research Service, USDA

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Appendix table 32. Sugar beet production cash costs, Great Lakes, 2003-04 with indexed values for 2005 Item 2003 2004 2005 (dollars per planted acre) Cash expenses: Seed 42.77 46.02 48.93 Fertilizer 80.31 85.65 98.41 Chemicals 74.37 74.13 74.13 Custom operations 30.15 30.86 31.86 Fuel and lubrication 48.14 59.24 81.41 Repairs 56.90 59.99 61.93 Purchases irrigation water 0.00 0.00 0.00 Freight and dirt hauling charges 21.05 21.38 22.84 Miscellaneous 3.34 3.55 3.79 Hauling allowance (-) 0.00 0.00 0.00 Interest on operating capital 1.89 3.01 3.19 Total operating cash expenses 358.92 383.83 426.47

Allocated overhead expenses: Hired labor 32.32 31.19 31.96 Opportunity cost of unpaid labor 108.31 104.53 107.13 Capital recovery of machinery 173.35 177.75 187.63 Opportunity cost of land 129.81 131.62 137.10 Taxes and insurance 14.74 15.07 14.61 General farm overhead 29.23 29.88 31.92 Coop share 12.36 12.66 12.51 Total allocated overhead expenses 500.12 502.70 522.85

Total production expenses 859.04 886.53 949.33

Yield (net tons/planted acre) 19.00 20.80 21.40 Source: Economic Research Service, USDA

Appendix table 33. Sugar beet production cash costs, Red River Valley, 2003-04 with indexed values for 2005 Item 2003 2004 2005 (dollars per planted acre) Cash expenses: Seed 48.02 51.67 54.94 Fertilizer 36.96 39.10 44.92 Chemicals 109.60 108.30 108.30 Custom operations 24.81 24.73 25.53 Fuel and lubrication 24.40 28.03 38.52 Repairs 38.59 38.93 40.19 Purchases irrigation water 0.06 0.07 0.07 Freight and dirt hauling charges 15.08 15.54 16.60 Miscellaneous 14.39 15.14 16.17 Hauling allowance (-) 10.45 10.45 11.16 Interest on operating capital 1.60 2.46 2.60 Total operating cash expenses 303.06 313.52 336.68

Allocated overhead expenses: Hired labor 58.44 61.89 63.43 Opportunity cost of unpaid labor 56.11 59.47 60.95 Capital recovery of machinery 128.54 129.67 136.87 Opportunity cost of land 86.26 87.47 91.11 Taxes and insurance 13.13 13.43 13.02 General farm overhead 29.58 30.24 32.30 Coop share 42.02 43.04 42.53 Total allocated overhead expenses 414.08 425.21 440.21

Total production expenses 717.14 738.73 776.90

Yield (net tons/planted acre) 20.30 19.80 18.80 Source: Economic Research Service, USDA

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Appendix table 34. Sugar beet production cash costs, Great Plains, 2003-04 with indexed values for 2005 Item 2003 2004 2005 (dollars per planted acre) Cash expenses: Seed 49.74 53.87 57.28 Fertilizer 76.31 78.10 89.73 Chemicals 78.19 77.77 77.77 Custom operations 37.84 40.62 41.93 Fuel and lubrication 50.32 59.59 81.89 Repairs 54.64 56.07 57.88 Purchases irrigation water 9.94 10.20 10.90 Freight and dirt hauling charges 14.81 15.11 16.14 Miscellaneous 19.79 20.51 21.91 Hauling allowance (-) 7.41 7.90 8.44 Interest on operating capital 2.04 3.19 3.38 Total operating cash expenses 386.21 407.13 450.36

Allocated overhead expenses: Hired labor 56.50 58.77 60.23 Opportunity cost of unpaid labor 160.43 167.05 171.20 Capital recovery of machinery 173.12 175.40 185.14 Opportunity cost of land 132.97 136.20 141.88 Taxes and insurance 16.90 17.10 16.57 General farm overhead 39.95 40.03 42.76 Coop share 11.75 12.03 11.89 Total allocated overhead expenses 591.62 606.58 629.67

Total production expenses 977.83 1013.71 1080.04

Yield (net tons/planted acre) 22.00 21.60 20.90 Source: Economic Research Service, USDA

Appendix table 35. Sugar beet production cash costs, Northwest, 2003-04 with indexed values for 2005 Item 2003 2004 2005 (dollars per planted acre) Cash expenses: Seed 41.83 44.87 47.71 Fertilizer 90.39 88.15 101.28 Chemicals 86.88 81.45 81.45 Custom operations 49.84 49.40 50.99 Fuel and lubrication 131.19 133.17 183.01 Repairs 66.16 67.19 69.36 Purchases irrigation water 17.05 18.34 19.59 Freight and dirt hauling charges 15.43 16.51 17.64 Miscellaneous 30.74 32.18 34.37 Hauling allowance (-) 1.31 1.29 1.38 Interest on operating capital 2.80 4.19 4.43 Total operating cash expenses 531.00 534.16 608.45

Allocated overhead expenses: Hired labor 102.65 109.22 111.93 Opportunity cost of unpaid labor 93.42 100.82 103.32 Capital recovery of machinery 220.36 220.63 232.89 Opportunity cost of land 215.02 217.01 226.05 Taxes and insurance 21.96 22.49 21.80 General farm overhead 47.16 48.51 51.82 Coop share 19.04 19.33 19.19 Total allocated overhead expenses 719.61 738.01 767.00

Total production expenses 1250.61 1272.17 1375.45

Yield (net tons/planted acre) 29.30 28.50 28.60 Source: Economic Research Service, USDA

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Appendix table 36. Sugar beet processing costs, United States, 1997-98 with projections for 2003-05 Item 1997 1998 2003 2004 2005 (cents per pound of refined sugar) Variable cash expenses: Beet acquisition 1.198 1.177 1.312 1.162 1.157 Processing: Labor 1.140 1.177 1.350 1.374 1.333 Fuel 1.273 1.144 1.552 1.698 1.966 Chemicals 0.247 0.257 0.261 0.274 0.277 Electricity 0.211 0.227 0.308 0.337 0.390 Materials and supplies 0.334 0.350 0.356 0.374 0.377 Repairs and maintenance 1.049 1.081 1.098 1.154 1.164 Labor benefits 0.737 0.764 0.956 1.044 1.041 Marketing 3.117 3.169 3.221 3.385 3.414 Total variable cash expenses 9.305 9.346 10.415 10.802 11.119

Fixed expenses: Depreciation 0.552 0.527 0.523 0.527 0.516 Taxes and insurance 0.120 0.120 0.122 0.128 0.129 Interest 0.412 0.390 0.397 0.417 0.421 Total fixed cash expenses 1.084 1.037 1.042 1.072 1.066

General and administrative: Labor 0.211 0.220 0.252 0.257 0.249 Nonlabor 0.279 0.277 0.281 0.296 0.298 Total general and administrative 0.490 0.497 0.534 0.553 0.548

Pulp drying and marketing 1.182 1.147 1.166 1.226 1.236

Total processing costs 12.062 12.028 13.157 13.653 13.969

Credits: Dried pulp 1.929 1.978 1.973 1.977 1.833 Molasses 0.487 0.404 0.395 0.393 0.376 Other 0.153 0.160 0.156 0.156 0.156 Total credits 2.568 2.542 2.524 2.526 2.366

Recovery rate per net ton of beets (lbs) 308.0 299.8 306.0 308.0 322.0 Source: 1997-98 data from Economic Research Service, USDA

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Appendix table 37. Sugar beet processing costs, Eastern Region, 1997-98 with projections for 2003-05 Item 1997 1998 2003 2004 2005 (cents per pound of refined sugar) Variable cash expenses: Beet acquisition 1.036 1.014 1.139 1.009 1.044 Processing: Labor 1.101 1.118 1.294 1.316 1.278 Fuel 1.308 1.158 1.584 1.733 2.006 Chemicals 0.272 0.275 0.282 0.296 0.299 Electricity 0.327 0.327 0.448 0.490 0.567 Materials and supplies 0.460 0.461 0.473 0.497 0.501 Repairs and maintenance 1.276 1.269 1.301 1.367 1.379 Labor benefits 0.748 0.759 0.958 1.046 1.043 Marketing 3.028 3.031 3.108 3.266 3.295 Total variable cash expenses 9.556 9.411 10.586 11.020 11.371

Fixed expenses: Depreciation 0.748 0.680 0.681 0.686 0.672 Taxes and insurance 0.133 0.131 0.134 0.141 0.142 Interest 0.311 0.294 0.302 0.317 0.320 Total fixed cash expenses 1.192 1.105 1.117 1.144 1.134

General and administrative: Labor 0.217 0.222 0.257 0.262 0.254 Nonlabor 0.155 0.157 0.161 0.169 0.171 Total general and administrative 0.372 0.379 0.418 0.431 0.425

Pulp drying and marketing 1.143 1.089 1.117 1.173 1.184

Total processing costs 12.264 11.985 13.238 13.769 14.113

Credits: Dried pulp 2.082 2.086 2.099 2.103 1.951 Molasses 0.528 0.425 0.420 0.417 0.399 Other 0.165 0.167 0.166 0.166 0.166 Total credits 2.775 2.678 2.685 2.687 2.516

Recovery rate per net ton of beets (lbs) 308.8 305.8 309.4 311.4 325.6 Source: 1997-98 data from Economic Research Service, USDA

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Appendix table 38. Sugar beet processing costs, Western Region, 1997-98 with projections for 2003-05 Item 1997 1998 2003 2004 2005 (cents per pound of refined sugar) Variable cash expenses: Beet acquisition 1.380 1.396 1.541 1.365 1.358 Processing: Labor 1.182 1.253 1.423 1.449 1.406 Fuel 1.227 1.123 1.510 1.652 1.913 Chemicals 0.218 0.228 0.230 0.241 0.244 Electricity 0.081 0.085 0.114 0.125 0.145 Materials and supplies 0.189 0.197 0.199 0.209 0.211 Repairs and maintenance 0.788 0.817 0.823 0.865 0.872 Labor benefits 0.723 0.766 0.950 1.038 1.034 Marketing4 3.216 3.339 3.364 3.535 3.566 Total variable cash expenses 9.004 9.204 10.154 10.478 10.748

Fixed expenses: Depreciation 0.329 0.310 0.305 0.307 0.301 Taxes and insurance 0.101 0.106 0.106 0.112 0.113 Interest 0.527 0.517 0.521 0.548 0.552 Total fixed cash expenses 0.957 0.933 0.932 0.966 0.966

General and administrative: Labor 0.202 0.214 0.244 0.248 0.241 Nonlabor 0.420 0.439 0.442 0.465 0.469 Total general and administrative 0.622 0.654 0.686 0.713 0.710

Pulp drying and marketing 1.224 1.222 1.231 1.294 1.305

Total processing costs 11.807 12.012 13.004 13.451 13.728

Credits: Dried pulp 1.748 1.814 1.793 1.797 1.667 Molasses 0.443 0.368 0.357 0.355 0.339 Other 0.140 0.146 0.143 0.143 0.143 Total credits 2.331 2.328 2.293 2.295 2.149

Recovery rate per net ton of beets (lbs) 307.2 293.8 302.6 304.6 318.4 Source: 1997-98 data from Economic Research Service, USDA

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Appendix table 39. Beet sugar production and processing costs per pound of refined sugar, United States, 2003-2005 Item 2003 2004 2005 (cents per pound of refined sugar) Production costs: Variable cash expenses 5.388 5.592 5.807 Fixed and other noncash expenses 7.465 7.656 7.495 Total production costs 12.853 13.248 13.301

Processing costs: Variable cash expenses 10.415 10.802 11.119 Fixed cash expenses 1.042 1.072 1.066 General and adm. Expenses 0.534 0.553 0.548 Pulp drying and marketing 1.166 1.226 1.236 Total processing costs 13.157 13.653 13.969

Credits: Dried pulp 1.973 1.977 1.833 Molasses 0.395 0.393 0.376 Other 0.156 0.156 0.156 Total 2.524 2.526 2.366

Total processing costs less credits 10.633 11.127 11.603

Total production & processing costs 23.486 24.375 24.905

Total variable costs less credits 13.278 13.869 14.560

Appendix table 40. Beet sugar production and processing costs per pound of refined sugar, Great Lakes and Red River Valley, 2003-2005 Great Lakes Red River Valley Item 2003 2004 2005 2003 2004 2005 (cents per pound of refined sugar) Production costs: Variable cash expenses 6.105 5.925 6.121 4.825 5.084 5.500 Fixed and other noncash expenses 8.507 7.760 7.504 6.592 6.895 7.191 Total production costs 14.612 13.685 13.624 11.417 11.979 12.692

Processing costs: Variable cash expenses 10.586 11.020 11.371 10.586 11.020 11.371 Fixed cash expenses 1.117 1.144 1.134 1.117 1.144 1.134 General and adm. Expenses 0.418 0.431 0.425 0.418 0.431 0.425 Pulp drying and marketing 1.117 1.173 1.184 1.117 1.173 1.184 Total processing costs 13.238 13.769 14.113 13.238 13.769 14.113

Credits: Dried pulp 2.099 2.103 1.951 2.099 2.103 1.951 Molasses 0.420 0.417 0.399 0.420 0.417 0.399 Other 0.166 0.166 0.166 0.166 0.166 0.166 Total 2.685 2.687 2.516 2.685 2.687 2.516

Total processing costs less credits 10.553 11.082 11.597 10.553 11.082 11.597

Total production & processing costs 25.165 24.767 25.222 21.971 23.062 24.289

Total variable costs less credits 14.007 14.259 14.976 12.726 13.418 14.356

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Appendix table 41. Beet sugar production and processing costs per pound of refined sugar, Great Plains and Northwest, 2003-2005 Great Plains Northwest Item 2003 2004 2005 2003 2004 2005 (cents per pound of refined sugar) Production costs: Variable cash expenses 5.802 6.189 6.768 5.990 6.154 6.682 Fixed and other noncash expenses 8.888 9.221 9.462 8.117 8.503 8.423 Total production costs 14.689 15.410 16.230 14.106 14.657 15.105

Processing costs: Variable cash expenses 10.154 10.478 10.748 10.154 10.478 10.748 Fixed cash expenses 0.932 0.966 0.966 0.932 0.966 0.966 General and adm. Expenses 0.686 0.713 0.710 0.686 0.713 0.710 Pulp drying and marketing 1.231 1.294 1.305 1.231 1.294 1.305 Total processing costs 13.004 13.451 13.728 13.004 13.451 13.728

Credits: Dried pulp 1.793 1.797 1.667 1.793 1.797 1.667 Molasses 0.357 0.355 0.339 0.357 0.355 0.339 Other 0.143 0.143 0.143 0.143 0.143 0.143 Total 2.293 2.295 2.149 2.293 2.295 2.149

Total processing costs less credits 10.711 11.156 11.579 10.711 11.156 11.579

Total production & processing costs 25.400 26.566 27.810 24.817 25.813 26.684

Total variable costs less credits 13.663 14.372 15.367 13.851 14.337 15.281

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